Open blog #2 Is GDP a useful measure?

I learn an interesting definition on this week’s macroeconomics class-“GDP”.

Gross domestic product (GDP) is a monetary measure of the value of all final goods and services produced in a period (quarterly or yearly). It depends on “Consumption”, “Investment”, “Government purchases” and “Net exports”.

However, GDP is not a perfect method to calculate a country’s economy.

1.       It does not count “household, production”.

GDP only make count production only which in market, like prepare meal at home would not count in it.

2.       It misses the “underground” or “informal” economy.

E.g. illegal

3.       If people work shorter hours, the value of greater leisure time is missed.

4.       It does not count other things that affect quality of life.

E.g. clean air, safety Street

5.       Per capita GDP is only an average different people mat face very differently.

GDP is average of the economy which may cause disproportion judgment. And it doesn’t distribution of income.

         So does this mean GDP is bad?

         After we observe this picture bellow we will found that, it is true that the country which has high GDP, has a higher life equality than the country which has lower GDP.

         Is GDP a useful measure?

As I learn from the lecture. It is a good measure in a sort time period in a country, but it is less good when use it in a long term, across country comparisons. So it is still useful, but we should “take it with a grain of salt”.

More information:

“If GDP is what we think is success, people will strive for GDP”:

A longer discussion of limitations of GDP by Nobel Prize winner Joseph Stiglitz

http://www.youtube.com/watch?v=QUaJMNtW6GA

Citation:

Mankiw, Brief Principles of Macroeconomics, 7th edition