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Limitations of Calculating the Gross Domestic Product

Explain why there are limitations to calculating national GDP (national income accounting).

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Limitations to calculating national GDP (national income accounting)

The GDP records the goods and services produced by the economy in a given period. However, not all items are recorded in the GDP. These items are:

1. The growth or decline of the informal sector is not shown in the GDP computation. The underground economic activities like the sidewalk vendors, babysitting done by mothers, washing of the clothes by the members of the family, village level repair shops, barter trade in some parts of the world, among others are not part of the economy's GDP.

2. The work done by household and househelp. Since GDP measures only activities that are official recorded, the ...

Solution Summary

The solution shows why there are limitations of gross domestic product computation.

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