Define what is meant by GDP, and explain the limitations of using it as a proxy for economic growth.

GPD, or Gross Domestic Product, can be defined as the total value of goods and services produced in an economy over a given period of time; specifically, GDP includes all private and public consumption, government outlays, investments and exports minus imports that occur within a defined territory, and can be calculated per annum, or even on a quarterly basis.
Nonetheless, its usefulness as a metric for economic growth continues to be widely challenged. Firstly, GDP does not reflect the negative externalities that are usually incurred when reaching higher levels of economic growth; for example, whilst GDP may increase through a rise in industrial output, such output will likely occur at the cost of increased pollution, limiting sustainable growth in the long-run. Additionally, the GDP figure favours negative expenditures, when in reality these too will limit economic sustainability in the long-run; the 2010 Deepwater Horizon oil spill, for example, added a sizeable $61.6bn dollars to GDP growth - in actuality, this incident is far from an economic success suggested by the increased GDP figure, and is completely undesirable. GDP is thus a very convoluted and misleading indication of growth, which ought to be substituted for other metrics, such as HDI.

Answered by Economics tutor

1958 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

The price of coffee beans rose from $1.15 to $1.40 between June and August 2017. A possible cause of this rise is: a) Improved weather conditions in coffee-growing countries; b) An increase in national minimum wage in coffee growing countries.


Comment on whether an increase in the rate of interest would reduce investment.


How does the law of diminishing marginal utility affect the demand for a Veblen good?


How can the Government increase aggregate demand


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences