I understand that Gross Domestic Product (GDP) is the broadest measure of output for an economy. But what exactly is GDP and what does it measure? Also, I am having trouble finding the limitations of GDP as a measure of well-being and welfare of a nation. Thank you.
GDP or the Gross Domestic Product quantifies the final goods and services produced by the economy in a given period of time using the resource of the economy. The word 'final' means that the goods and services are not utilized further but for buyers' ultimate consumption.
What does it measure?
There are two ways where GDP is measured - GDP by income approach and GDP by expenditure approach.
In the GDP income approach, the following items are computed (Fullerton College, 2007):
a.) Income of persons - The remuneration or income paid for exerting work (salaries, wages) or as payment on the use of resources (rent, profits).
b.) Corporate Income - Income of corporations through dividends.
c.) Government income - Income derived from government agencies through the various government income generating ...
The solution shows the essence of GDP measurements. It shows its limitations as a measure of the quality of life of the citizens.