Many financial analysts use GDP as a measure of the economy’s performa

Many financial analysts use GDP as a measure of the economy’s performance. However, GDP has several shortcomings in terms of measuring economic well-being.

State at least three such shortcomings and explain how each affects the validity of GDP as a measure of economic well-being.

ANSWER

1 ) GDP does not include the value of non-market activities such as house cleaning by you and your spouse, which would understate economic well-being.
2 ) GDP does not reflect the adverse effects of pollution that reduces economic well-being.
3 ) GDP does not capture the value of leisure time. If leisure time is being reduced, economic well-being could decrease.