The measure of an economy’s health by GDP has so many disadvantages. The Gross Domestic Product of a nation is its total market value of final services and goods in a specific time period. GDP does not show how wealth gets distributed and the life quality or happiness in an economy. Hypothetically, a nation could have the highest GDP and poverty rate at the same time. Other ways of determining a nation’s well-being apart from GDP measures should, therefore, be considered. In the computation, of the GDP of a country's only final products get included in the accounting. Currently produced goods in a certain time get accounted for in the computation of GDP. This means that if one buys a 120 year old classic house it does not contribute to the GDP (Mankiw 102). This is an illustration of how GDP is an inappropriate way to measure the economic health of a country. Another fault in using GDP as a measure of a county’s economic health is the issue of double counting where the monetary value of intermediate products and final products are computed in the final GDP figure hence not giving a true picture of a country’s economic health.
The Keynes income expenditure model argues that the equilibrium output level in the economy i.e. the real GDP may not be same as the natural GDP. It is for this reason that Keynesian economists argue the economic health of a nation could be determined by other factors like the happiness level, leisure and inequality. Dependence on the monetary ways of determining the real GDP is not an effective way of determining the living standards of a country (Mankiw 218). More wealth by a country does not translate to a higher life quality when leisure and life expectancy get factored. It would be difficult to come up with a single way of measuring a nation’s economic health other than GDP. Economists are still on the verge of coming up with another way to indicate the success of nations. All is left is for the leaders to choose the most appropriate way of measuring and comparing the economic health of nations.
Mankiw, N. Gregory. Principles of Macroeconomics. New York: Cengage Learning, 2008.Print