Gross domestic product or GDP measures the total value of all final goods and services produced in the economy during a given year. The index includes: domestically produced final goods and services (including capital goods), new construction of structures, and changes to inventories. However, not included in the index are the following: intermediate goodsand services, inputs, used goods, financial assets like stocks and bonds, foreign-produced goods and services, items produced and sold illegally.
While it could be said that one of the major advantages of the GDP per capita as an indicator of standard of living is that it is measured frequently, widely, and consistently, at a closer look, it is not really a measure of standard of living. GDP isintended to be a measure of total national economic activity, which is quite a separate concept.
That being said, it This makes the GDP the best single measure of the economic well-being of a society if we can conclude because we can inferred that all citizens would benefit from their country's increased economic production equally, what definitely is not the case. and that people prefer higherto lower incomes, Therefore, but it it is not necessarily a measure of welfare or even a significant measure of standards of living, because some things important subjects that contribute to well-being are not included in GDP. For example the value of leisure, the value of almost all activity that takes place outside of markets, such as voluntaryeer work, take care of the child care, householdactivitieswork; or the value of a ‘Greenclean Eenvironment’. Further, : by counting the positive goods goods which increases utility but not deducting bads the negative effects or accounting for their negative effects them ofas higher production, such as more pollution, GDP is overstating economic welfare. As well, GDP does not measure what is considered the sustainability of growth. A country mayachieve a temporarily high GDP by over-exploiting natural resources or by misallocating investments. For example, economic growth at the expense of environmental degradation can end up being a costlying dearly to clean up process. GDP also does not capture investments in social capital, such as investments in communities or social institutions. Other critics for of the GDP is that it does nottake disparity in incomes between the rich and poor into account. The degree to which individuals and different groups share in a country’s prosperity is another indicator of economic and social well-being. GDP per capita, which divides the GDP by the country’s population, provides only a rough estimate of each person’s “share” of the market economy. However, Iin reality, some people’s share ofthe economy is greater than others. This level and changes in inequality in the distribution of incomes and consumption, and the incidence of poverty, cannot be determined by tracking the GDP.
Theis subject about environmental and economic development is a strong argument nowadays because the financial crisis and global warming have revealed that there is something wrong in the traditional waysof measuring wealth because these methods do not take speculative risk and environmental costs into consideration.
Moreover, GDP is inadeqcuated because it is not possible to distinguish between activities that have a negative or a positive impact on well-being. In fact, war and even natural disasters may register as an increase in GDP.
So, the point Fact is that GDP includes goods andservices that do not increase a country’s economic wealth, and, furthermore, excludes goods and services that do. Thus, the use of GDP as an indicator of economic progress can result in distortions and could easily mislead as it does not give a perfect base for a fair comparison.
For example, if we look at the List of Ccountries sorted ranked by their GDP according to the International Monetary...