The limitations of GDP, GNP and CPI

The limitations of GDP, GNP and CPI

by Ariful Islam Kushol -
Number of replies: 1

        The limitations of GDP

  • GDP does not include non-market activity.
  • GDP does not include transactions taking place in an underground economy.
  • GDP does not include sale of 'second hand' goods. 
  • GDP does not include the transactions taking place in the 'stock market'. 
  • GDP does not include 'leisure time'.
        The limitations of GNP

  • Exchange Rate
  • Cannot tell if Economy is Growing
  • GNP Inflated due to Expats
  • GNP Deflated due to Foreign Direct Investment

       The limitations of CPI

       While the CPI is a convenient way to compute the cost of living and the relative price level across time, because it is based on a fixed basket         of goods, it does not provide a completely accurate estimate of the cost of living. Three problems with the CPI deserve mention: the                 substitution bias, the introduction of new items, and quality changes. Let's examine each of these in detail.