Assignment- 1

Topic: The problems of GDP measurement in the light of Bangladesh’s Economy

Course Code: MEE 102

Macroeconomics

Submitted By
Md. Adnan Aziz Khan
Roll- 04, Batch- 04,
Master of Economics (Entrepreneurship Economics)

Submitted To
Mrs Sara Tasneem (PhD- Continuing)
Lecturer
Dhaka School of Economics

Date of Submission: 30th April 2021

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The problems of GDP measurement in the light of Bangladesh’s Economy :
As much as economists like to use GDP as a measure of output, or even as a measure of a country’s
well being, GDP has some problems when trying to answer those questions. Even though GDP is
frequently used to capture the wellbeing of a society, it was never intended to do that, and as a
result it leaves out important aspects of well-being like pollution or even happiness.
GDP is a reasonably accurate and highly useful measure of how well or how poorly the economy
is performing. But it has several shortcomings as a measure of both total output and well-being
(total utility).

Below here I am discussing the problems of measuring GDP in the light of Bangladesh’s economy.

1. Nonmarket Activities (Household Activities)

Certain productive activities do not take place in any market—the services of stay-at-home parents,
for example, and the labor of carpenters who repair their own homes. Such activities never show
up in GDP because the accountants who tally up GDP only get data on economic transactions
involving market activities—that is, transactions in which output or resources are traded for
money. Consequently, GDP understates a nation’s total output because it does not count unpaid
work. There is one exception: The portion of farmers’ output that farmers consume them selves
is estimated and included in GDP.

2. Leisure
The increase in leisure time has clearly had a positive effect on overall well-being. But our system
of national income accounting understates well-being by ignoring leisure’s value. So the individual
leisure time are not counted in GDP.

3. Improved Product Quality

GDP is a quantitative measure rather than a qualitative measure, it fails to capture the full value of
improvements in product quality. A BDT 15000 Television purchased today is of very different
quality than a Television that cost BDT 15000 just a decade ago. Today’s television is digital and
smart TV, a viewing screen quality much bigger and better than previous. Obviously quality
improvement has a great effect on economic well-being, as does the quantity of goods produced.
The vast majority of such improvement for the entire range of goods and services does not get
reflected in GDP.

4. The Underground Economy

Some of the people who conduct business there are gamblers, smugglers, prostitutes and drug
dealers. They have good reason to conceal their incomes. Most participants in the underground
economy. A manager of a coffee shop may report just a portion of the tips received from customers.
Storekeepers may report only a portion of their sales receipts. Workers who want to hold on to
their unemployment compensation benefits may take an “off-the-books” or “cash-only” job. The
value of none of these transactions shows up in GDP. So this is one of the major problem to
measure the GDP.

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 5. Depreciation of Capital
The decrease in the value of a nation’s capital stock over time; GDP accounts for investment in new capital
but does mot subtract the lost value of depreciated capital. Because of this, GDP may overstate the
amount of economy activity in nations with rapidly depreciating capital stocks.

6. Real GDP per capita

The real gross domestic product of a nation, divided by the nation’s population; this measure is an
indication of the average income of a nation’s people.

7. GDP and the Environment

Any outcome from economic activity that creates negative value for society, such as air pollution from
cars that harms human health and the environment. Like in Bangladesh Burigonga river was polluted
with the wastage water of leather industries. This type of pollution not possible to reflect in GDP. So
GDP is overstate.