GDP is quite a good measure of a nation’s production of goods and services, but it doesn’t include many other factors relating to the standard of living in an economy and for this reason, various other measures of living standards have been developed. However, there is also another issue with GDP and that relates to how best to measure a country’s economic performance. Should we use GDP per head or GDP growth? Population changes can significantly distort economic welfare and so do need to be taken into account. The article below from The Economist looks at these issues in depth and considers the best way to measure economic performance.
Grossly distorted picture The Economist (13/3/08)
Questions
| 1. | Explain how GDP per head can fall while economic growth is rising. |
| 2. | Explain why the use of GDP per head as a measure of economic performance may lead to the definition of recession being flawed. |
| 3. | Assess the principal factors that result in economic growth and GDP per head rising together. |