03 May 2025 : Daily Answer Writing
Q1) What is meant by Gross Domestic Product (GDP) and why is it widely used as an indicator of economic growth? Explain the different methods used to calculate GDP and highlight its limitations as a measure of economic progress.
(GS Paper 3 – 10 Marks, 150 Words)
Answer
Gross Domestic Product (GDP) refers to the total monetary value of all goods and services produced within a country’s borders over a specific period. It is a key indicator of economic activity and is widely used to assess economic growth, policy effectiveness, and development trends.
Methods of Calculating GDP
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Production/Output Method – measures the total value of goods and services produced.
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Income Method – sums up all incomes earned (wages, rent, interest, profits) in the economy.
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Expenditure Method – adds up total spending on final goods and services (C+I+G+NX).
Limitations of GDP
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Ignores income inequality and wealth distribution.
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Does not reflect environmental degradation or resource depletion.
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Excludes non-market activities (e.g., unpaid domestic work).
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Overlooks well-being and quality of life.
Conclusion
While GDP is crucial for measuring economic growth, it must be complemented by indicators like HDI and GPI for a comprehensive view of economic and social progress.
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