Question

GDP and WELL-BEING

The following questions pertain to the U.S.' GDP.

1. What does GDP measure?

2. How well does GDP measure the well-being of a society?

3. Assume you were assigned the responsibly for establishing a new metric to modify GDP so that it encompass production and the well-being of a society. Discuss the additions you would make to GDP and why.

Answer 1

1) GDP measure the value of goods and services produced in an economy during the fiscal year.

2) GDP is not a perfect measure to calculate well being because:

• It does not capture whether people are not, economist just calculate the growth in numbers.
• Inflation is not taken into account.
• Nominal GDP growth is not sustainable because we tends to hurt environment to raise our production level.
• It does not incorporate HDI index which is an index to calculate overall level of literacy, education and health in an economy.

3) If I were to modify GDP, I will add Real in front of GDP which is Real GDP. It incorporate inflation into account and give more reliable number of economic growth. It also helps in comparing GDP with other countries when we calculate real GDP per capita of both countries such that we get overall idea of standard of living in both countries.