What are the limitations of GDP, GNP and CPI?

What are the limitations of GDP, GNP and CPI?

by Mirza Md Abir -
Number of replies: 1


Limitation of GDP

1. GDP does not include non-market activities.

2. GDP does not include transactions in an underground economy.

3. GDP does not include sales of 'second-hand goods.

4. GDP does not include transactions that take place in the 'stock market'.

5. GDP does not include 'leisure time.


Limitation of GNP

1. Exchange rate

2. Can't tell if the economy is growing

3. GNP inflated due to expatriates

4. GNP decreased due to foreign direct investment


Limitations of CPI

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