Question

Does increase in gross domestic product show an improvement in public welfare? Explain.

Hint:

GDP growth does not always reflect improvements in public welfare, as it fails to account for factors like income inequality, environmental sustainability, and social well-being.

Answer 1

An increase in Gross Domestic Product (GDP) does not always indicate an improvement in public welfare. While GDP measures the total economic output of a country, it does not account for how that output is distributed, nor does it measure factors like income inequality, environmental sustainability, or the overall well-being of citizens. The relationship between GDP growth and public welfare is complex and can be explained as follows:

Step 1: Limitations of GDP as a Welfare Indicator.
GDP only reflects the monetary value of goods and services produced in an economy. It does not account for income distribution, which is crucial for assessing welfare. A country with high GDP growth could still have significant income inequality, where only a small portion of the population benefits from the increase in wealth.

Step 2: GDP and Social Welfare Indicators.
Social welfare indicators, such as life expectancy, education levels, health care, and quality of life, are not directly included in GDP. For example, a country might experience GDP growth due to increased production in industries like mining or manufacturing, but this could come at the cost of environmental degradation, which negatively impacts public welfare.

Step 3: Other Factors Influencing Welfare.
- Income Inequality: Even with high GDP growth, if wealth is concentrated in the hands of a few, the majority of the population might not experience an improvement in their living standards.
- Environmental Sustainability: A country might grow its GDP by exploiting natural resources, which could harm long-term ecological health, affecting the welfare of future generations.
- Non-Market Activities: GDP does not account for household or volunteer work, which also contributes to societal well-being.

Step 4: Conclusion.
Therefore, while an increase in GDP can signal economic growth, it does not automatically lead to improved public welfare. A more comprehensive measure, such as Human Development Index (HDI) or Genuine Progress Indicator (GPI), should be used to assess overall welfare.