Download GDP represents the market value of all final goods and services

GDP-definition and problems--know all for your exam!
Definition of GDP (Gross Domestic Product)
Memorize this definition! Don’t leave out a single word. Don’t use your own words--in most cases you will be
wrong!
GDP represents the market value of all final goods and services
produced within the borders of an economy over a period of
time (quarterly or annually).
Why isn’t GDP a good measure of our economic (material) wellbeing?
There are 5 reasons listed here. Know them all (1-5). There are other reasons in addition to these five but you
need to know these five.
1. GDP does not include the value of non-market activities such as
a. housework, child-care in the home, do-it-yourself work, home repair, etc.
b. volunteer work or exchange work
c. “underground” activities, legal or illegal.
2. There is no adjustment made in GDP calculations for leisure time. (Note, in economics, leisure time does
not mean going on vacation. Leisure time just means the time when you are not at work at your paid job. You
could spend that time sleeping, eating, reading, sitting on your couch, playing tennis, doing your homework,
practicing with your band, or whatever.)
3. “Bads” and “regrets” are included such as:
a. economic activity to repair damage from wars, natural disasters, oil spills, etc.
b. the need for alarm and security systems, prisons, etc.
c. commute time and costs
4. There is no deduction in GDP for the use or depletion of our natural resources, such as oil, the rain forests,
wet-lands, fish stocks, endangered species, clean air, clean water, etc. This is a concern especially for our nonrenewable resources.
5. There is no indication of how the value of GDP (either the actual goods and services produced or the income
generated) is divided among the various social and economic groups and individuals within the economy.
Make sure you can answer the following questions as well. Which of the above points (1-5) does each question
relate to?
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If GDP included the non-market activities, what would happen to GDP? Would it increase, decrease or
stay the same? Why?
Is the US (real) GDP from 1954 strictly comparable to the US (real) GDP from 2014? Explain.
(Note, in 1954 most married women did not work in the paid labor force. Their “proper place” was in the
home-- cooking, cleaning and taking care of the children. Today most women work and most families hire
childcare and rely on precooked meals like frozen foods, fast foods and pizza.)
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One hundred years ago the average work week was 60 hours. Today it is 35-40 hours. Can we legitimately
compare (real) GDP from 1900 with (real) GDP from 2010? Why or why not? Explain.
In France most everyone enjoys paid time-off for at least 6 weeks a year. What would happen to their
GDP if workers only had 2 weeks off a year (as in the U.S.)?
(Note, the rest of the world thinks of us here in the U.S. as those crazy work-a-holic Americans—second only
to Japanese men. (Women in Japan are just now overcoming the gender biases in the work place that women in
the US fought against in the 1970s and 1980s.)
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School teachers, firemen, policemen and workers in the low paid service sector (waiters, janitors, some
healthcare workers, etc.) cannot afford to live in Silicon Valley, San Francisco (and other similar places
across the US). They must spend from 2 to 4 hours a day commuting. If we adjusted GDP to account for
the overall increase in commute time since the 1980s, would our GDP increase, decrease or stay the same?
Explain.
China has one of the fastest growing economies in the world. They are also one of the worst polluters in
the world. What would happen to China’s GDP if they had to include the negative costs of pollution?
Would it increase, decrease or stay the same? Explain.
(Have you seen pictures of people walking down the streets in Beijing? Many are wearing masks over their
mouth and nose to protect themselves from breathing in the pollution particulates in the air.) Pollution is a big
problem for all the BRIC economies. C stands for China. B, R, and I stand for which countries?)
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The slogan for the Occupy Wall Street movement was “We are the 99%.” What did they mean? See article
in Slate. Given the trends regarding the distribution of income and wealth over the past 40 years or so,
how would you adjust GDP (to reflect this change)?
(Note, income is generated from producing GDP. People who help produce the GDP are paid for their
contributions. The workers are paid wages or salaries. The owners of the factories, office buildings, stores, etc.
are paid rent. The owners of the businesses are paid profits and the owners of financial funds lent to others are
paid interest. Wealth is the accumulation of assets—things owned that are of value. Things like factories,
shopping centers, office buildings, homes, shares of stock, bonds, savings accounts, jewelry, paintings,
antiques, baseball cards, rare stamps or coins, etc.)
For a more complete discussion of these issues see the articles on the Genuine Progress Indicator.