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Ha Maeco

The document discusses several flaws in how GDP is calculated as a measure of economic performance and well-being. It notes that GDP excludes non-market activities, does not account for quality of life factors like health and education, ignores income inequality, and fails to consider environmental impacts. As alternatives, the document outlines measures like the Human Development Index, Genuine Progress Indicator, OECD Dashboard approach, and Social Progress Index, which provide more comprehensive views of a nation's development beyond economic outputs alone. When advising a government, choosing a suitable measure requires considering the country's specific goals and values, and potentially combining elements from different existing approaches.

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21 views

Ha Maeco

The document discusses several flaws in how GDP is calculated as a measure of economic performance and well-being. It notes that GDP excludes non-market activities, does not account for quality of life factors like health and education, ignores income inequality, and fails to consider environmental impacts. As alternatives, the document outlines measures like the Human Development Index, Genuine Progress Indicator, OECD Dashboard approach, and Social Progress Index, which provide more comprehensive views of a nation's development beyond economic outputs alone. When advising a government, choosing a suitable measure requires considering the country's specific goals and values, and potentially combining elements from different existing approaches.

Uploaded by

sksikdar.badmal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Krishanu Sikdar_2304052

1. Discuss the flaws in the design of GDP calculation.


Ans:- Gross domestic product (GDP) is a widely used measure of a country’s economic performance
and overall well-being. However, several inherent deficiencies in its design can be rectified to get a
complete picture of the economic and social situation of the country. These shortcomings include:
Exclusion of non-market activities: GDP focuses primarily on market activities, such as producing
goods and services. This does not include non-market activities such as domestic work, volunteering,
and unpaid care, essential contributors to social well-being.
Quality of life measures: GDP measures economic growth but not quality of life. It does not include
health, education, environmental quality, and income distribution, which are important determinants of a
country’s well-being.
Ignore income inequality: GDP does not reflect income distribution within a country. GDP can rise as a
more significant segment of the population experiences a decrease in income, increasing income
inequality.
Environmental Impact: GDP growth generally offsets environmental degradation. Harmful economic
activities such as pollution and depletion are not included in GDP, leading to an unsustainable growth
process.
Misreporting of the informal economy: Many countries have significant informal or underground
economy that needs to be captured by official GDP figures. This misreporting can lead to an incorrect
assessment of the country’s economic performance.
Economic hypothesis: Economic activities such as securities trading and speculative investment add to
GDP, which may not contribute to the welfare of the natural economy and may even lead to financial
crisis
Short-term focus: Policymakers and governments tend to prioritize short-term GDP growth, which may
overlook long-term economic and social stability
Investment volatility: Spending in the economy can be highly volatile, causing changes in GDP that do
not necessarily reflect the general welfare of the country
Ignore non-market goods: GDP does not consider non-market goods, such as public services such as
education, health, and security, critical to social welfare.
Inadequate measurement of innovation: Welfare-enhancing innovations must be counted in GDP and
may underestimate the role of technology and innovation in economic growth.
Simply put, GDP is a valuable economic indicator, but other metrics must be included to provide a
comprehensive assessment of a country’s overall well-being. Policymakers, economists, and researchers need
alternative measures such as the Human Development Index (HDI) and the Real Progress Index ( GPI). is
accepted.

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Krishanu Sikdar_2304052

2. Among the notable alternative approaches are the Human Development


Index, the Dashboard approach pioneered by OECD countries, and the Social
Progress Index. Discuss briefly all the alternative approaches, including the
ones mentioned here, and choose the one or create your measure where you
are asked by the Government of a country to advise it on a suitable measure
of economy.
Ans:-

Human Development Index (HDI):


The Human Development Index, developed by the United Nations, evaluates a country's well-being
based on three core dimensions: life expectancy (health), education (knowledge), and per capita income
(standard of living). HDI provides a more comprehensive view of human development by incorporating
factors beyond economic growth.
Genuine Progress Indicator (GPI):
The Genuine Progress Indicator, designed as an alternative to GDP, accounts for environmental and
social factors. It considers income distribution, environmental quality, and the value of non-market
activities. GPI provides insights into whether economic growth leads to actual improvements in well-
being, including equity and sustainability.
Dashboard Approach (OECD):
The Organization for Economic Cooperation and Development (OECD) employs a dashboard of well-
being indicators, including education, health, income, environmental quality, and life satisfaction. This
multi-dimensional approach allows countries to assess the overall quality of life and societal progress.
Social Progress Index (SPI):
The Social Progress Index, developed by the Social Progress Imperative, focuses on three key
dimensions: basic human needs, foundations of well-being, and opportunity. SPI uses multiple indicators
to measure access to education, healthcare, and personal rights, providing a comprehensive view of
societal development beyond economic factors.
Ecological Footprint:
The Ecological Footprint measures a nation's environmental impact by assessing how much natural
resources it consumes compared to the planet's capacity to regenerate those resources. It highlights the
sustainability of a country's consumption patterns.

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Krishanu Sikdar_2304052

Gross National Happiness (GNH):


Pioneered by Bhutan, GNH assesses a nation's well-being based on spiritual, physical, and mental
health, sustainable development, cultural preservation, and good governance. It focuses on holistic
happiness rather than economic growth.

Well-being Economics:
Well-being economics incorporates various indicators reflecting overall quality of life and societal
progress. It considers mental health, community engagement, and social relationships to create a more
holistic view of well-being.
When advising a government on a suitable measure of the economy, it is essential to consider the
specific goals, values, and challenges of the country in question. Each alternative approach has its
merits, but it is vital to choose one that aligns with the nation's priorities and values. Additionally, a
tailored approach that combines elements of different measures may be the most effective way to create
a comprehensive assessment of a country's well-being. The choice of measure should be based on the
specific context and goals of the nation and its commitment to addressing not only economic growth but
also the welfare and happiness of its citizens.

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