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Is GDP correct measure of welfare? Answer in 100-200 words.. |
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Answer» -It’s definitely not. GDP is the measure of total value ADDED an economy produces, which does not include distributional CONCERNS. No SERIOUS economic analysis uses GDP as a measure of welfare. Instead, economists use something called utility function. Mathematical details aside, utility functions take into account inequality in the economy. One important example is international trade. Standard models show that free trade increases GDP. Still, these models are SILENT about the welfare consequences. Free trade creates winners and losers. Winners win more than losers lose so overall GDP increases. However, increased inequality might lead to overall lower welfare.BE SMART ^_^ |
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