Limitations of GDP
- GDP does not incorporate any measures of welfare.
- GDP only includes market transactions.
- GDP does not describe income distribution.
- GDP does not describe what is being produced.
- GDP ignores externalities
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
It does not measure price changes in regional, rural or remote areas. The CPI also does not take into account the differences in spending patterns between individual households