Limitations of GDP Measure
Gross domestic product (GDP) is one of the leading indicators of how successfully and productively a country conducts its economic activities. This aspect substitutes the “market value of all final goods and services produced within a nation during a specific period—typically, a year” (Coppock & Mateer, 2020, p. 200). GDP represents several goals regarding the life of society and the country’s economy. Thus, it pursues goals of stable prices, lower unemployment rates, and high and steady growth (Mjmfoodie, 2009a). However, this measure omits some particularly critical things in describing how well society lives in the country.
Environmental Impact
Environmental sustainability is one of society’s most important concerns, but it is not included in GDP measures. Thus, with high production activity, significant pollution of nature occurs due to processes such as manufacturing and transportation. The GDP does not include this aspect, which concerns many people who care about limited pollution and the use of exhaustible natural resources.
Distribution of Prosperity
Another aspect that is not considered when measuring GDP is the distribution of growth. This aspect is because it directly indicates inequality in the country and the extent to which welfare is distributed among the country’s population. Unequal distribution of growth affects all aspects of society, especially wages.
Volunteer Contributions
The value of volunteer work is the third example of what is essential to society but omitted from the GDP measure. This aspect is of particular value since, at the moment, a large number of organizations provide free services to needy segments of the population. Therefore, if hired workers to perform the same functions are counted in the GDP, then volunteers are not.
Intermediate Goods
Definition and Characteristics of Intermediate Goods
When considering the GDP, it is necessary to study the aspects included in it, such as goods and services. Intermediate goods are one of the most critical components of creating an item. It represents “goods that firms repackage or bundle with other goods for sale at a later stage” (Coppock & Mateer, 2020, p. 209). The main distinguishing feature of this aspect is that it is partially completed. In other words, it differs from the concept of the final good in that it is still at the sale stage, whereas the first is a product that has already been sold to the consumer.
Treatment of Intermediate Goods in GDP Calculations
It is worth paying particular attention to the fact that the value of intermediate goods produced and sold during the year is not included directly as part of the GDP of a particular country. This aspect raises a question since the value of intermediate goods produced and not sold is included in this indicator. This difference is because GDP is a measure of well-being that reflects the value of goods and services sold inside the country in a given year (Mjmfoodie, 2009b) because, when calculating GDP, such an aspect as the value of intermediate goods is already included in the final good. In addition, it must be emphasized that people “cannot get an accurate measure of GDP by summing all the sales made during the year, because many of them reflect intermediate steps in the production process” (Coppock & Mateer, 2020, p. 210). Thus, if both these indicators are considered, the same value will be recalculated.
References
Coppock, L. & Mateer, D. (2020). Principles of macroeconomics. W. W. Norton & Company.
Mjmfoodie. (2009a). (Macro) Episode 20: Real GDP [Video]. YouTube. Web.
Mjmfoodie. (2009b). (Macro) Episode 21: Real GDP [Video]. YouTube. Web.