To what extent can a measure of national income (GDP) Essay

To what extent can a measure of national income (GDP) - Essay Example Keywords: GDP, welfare, happiness, economy, wealth. GDP as a Measure of Happiness and Welfare Gross Domestic Product is a value of all the final goods and services that are produced in domestic territory of an economy, within a single accounting year. This is used as a measurement for finding out the different levels of growth in an economy. Not only that, but the GDP is used to compare the growth and development of one economy with another as well. However, with time, many economists have begun trying to find out the happiness index faced by the citizens of a country, with the help of the GDP. However, they fail to pose the following questions; what is the relationship between GDP and welfare? Can GDP be regarded as a good index of welfare among the people of a country? Or is it simply a measure for finding out the kind of growth and development the economy has undergone, not taking into account the actual distribution of wealth? While looking at the figures of per capita income and national income of a country on the whole, one may find that the country is prospering very well and has achieved growing levels of independency when it comes to its market segments and trade related areas. The country might be doing really well in almost all fields – right from the primary to the tertiary sector. But just because something looks good from the outside, it cannot be judged inside as well, can it? In simple terms, the capacity to purchase goods and services is what makes people feel satisfied. However, this capacity or purchasing power is available to the people of a nation on the basis of their incomes. If they have low incomes, then they are able to afford lesser and vice versa. The happiness index of a person thus, depends on the kind of satisfaction he is able to achieve, which in turn, as discussed above, is a direct reaction to the level of income earned by him. In this case, the GDP cannot be measured in terms of the number of goods and services sold in an economy in a year, but by the level of distribution of income within the country which in turn affects the number of goods and services purchased by different sections of society within a year. Therefore, the use of goods and services by different people in an economy is what contributes to their well being, and not just the GDP alone. The greater the magnitude of the GDP, the greater the welfare of the people, was what was earlier believed by most economists. However, with more development and consumerism all around the world, with people having higher power and choices in order to utilize resources to satisfy their needs and wants, the GDP itself poses very stark limitations to the kind of measurement it can hope to provide to measuring an index of welfare of the nation. (Osberg, Lars and Sharpe, Andrew) In order to understand this argument better, one needs to delve into the levels of distribution of income within a nation or an economy. The distribution of wealth is not unif orm in most economies, may they be developed or developing ones. There is always a clear demarcation between the haves and the have not’