Explain why other income and output measures are used to express the performance of the economy in addition to GDP.
Other income and output measures are used to express the performance of the economy in addition to Gross Domestic Product (GDP) because GDP has certain limitations and is an incomplete indicator of economic well-being. While GDP is a commonly used measure of economic output, it does not provide a comprehensive picture of the overall economic health of a country. Here are a few reasons why other income and output measures are used:
1. Distribution of income: GDP only measures the total value of goods and services produced within a country's borders, but it does not provide information about how income is distributed among different segments of the population. Other measures, such as the Gini coefficient and measures of income inequality, can be used to assess whether economic growth is benefiting a broad section of society or if it is concentrated in the hands of a few.
2. Non-market activities: GDP primarily focuses on goods and services produced in the market, which means that important activities like unpaid work (such as household chores) and volunteering are not accounted for. Other measures like the Human Development Index (HDI) or the Social Progress Index (SPI) consider factors like education, health, and environment, which are not captured by GDP alone.
3. Sustainability and well-being: GDP is primarily a measure of economic output and does not take into account the depletion of natural resources or the impact on the environment. Other measures like Genuine Progress Indicator (GPI) or the Ecological Footprint provide a more comprehensive assessment by incorporating social and environmental factors into the analysis.
4. Quality of life: GDP does not directly measure factors that contribute to the overall quality of life, such as access to healthcare, education, and housing. Other indices like the Human Development Index (HDI) or the Better Life Index (BLI) take into account various dimensions that contribute to human well-being.
In summary, other income and output measures are used to complement GDP because they provide a more holistic understanding of the overall performance of an economy. By considering additional factors such as income distribution, non-market activities, sustainability, well-being, and quality of life, policymakers and analysts can have a more thorough and comprehensive view of economic performance and societal well-being.