Limitations of using GDP as an indicator are as follows:
1. Distribution of GDP: It is possible that with rise in GDP, inequalities in the distribution of income may also increase, i.e. the gap between rich and poor increases. GDP does not take into account changes in inequalities in the distribution of income. So, *** of the people may not rise as much as the rise in GDP.
2. Change in prices: If increase in GDP is due to rise in prices and not due to increase in physical output, then it will not be reliable index of economic ***.
3. Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms. For example- non-market transactions like services of housewife, kitchen gardening, leisure time activities etc. are not included in GDP, due to non-availability of data. However, such activities influence the economic ***.
4. Externalities: Externalities refers to benefits or harms of an activity caused by a firm or an individual, for which they are not paid or penalised. Activities which results in benefits to others are termed as positive externalities and activities which result in harm to others are termed as negative externalities.
5. Rate of population growth: GDP does not consider the changes in the population of a country. If rate of population growth is higher than the rate of growth of GDP, then it will decrease the per capita availability of goods and services, which will adversely affect the economic ***.
Finally, it can be conducted that GDP may not be taken as a satisfactory measure of economic ** due to above mentioned limitations, yet it does reflect some index of economic **.
