One of the shortcomings is that GDP measures total production of goods and servi

Question

One of the shortcomings is that GDP measures total production of goods and services but ignores income distribution in our society. We have all witnessed these distribution issues in the great recession of the last few years. If the economy returns to the growth rates that preceded the Great Recession will this distribution issue diminish significantly, or will we remain in a situation where income disparity worsens, in spite of economic growth? In other words discuss whether the change is permanent or temporary

Explanation / Answer

Yes one of the biggest shortcomings of the GDP is that it measures only the total production of goods and services in a country but ignores the income distribution in the society. According to the National income identity it consist of four parts

1)Household Consumption

2)Government Expenditure

3)Investment

4)Net exports

We can see that this clearly ignores the distribution of income in the society.

After the Great Recession, the economy has been down and the governement has been focusing on recovering it by increasing the above four factors but it still does not account for the individual income or income distribution.

So according to me the income disparity will continue even if the economy comes bacj to previous growth rate and as far as GDP is concerned it will still consist of the 4 components and ignore the distribution of the income. Speaking about whether the change is permanent or temorary, the change in the direction of GDP may have been temporary but the income disparity is a major issue that should be tackled and GDP should reflect that which is not the case yet.

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