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Lesson 6-2
GDP and Economic Well-Being
GDP should be adjusted to real GDP
accounting for inflation in order to be
acceptable as any kind of measure of wellbeing.
Measurement Problems in Estimating Real
GDP
Revisions
Counting GDP is such a large task that the data
is still preliminary 3 months after the fact and
still subject to revision.
The Service Sector
Service sector output is hard to measure
because it is often difficult to say what a unit of
output is in the service sector. Exactly what
does a teacher or a customer service
representative produce?
The service sector is a growing portion of the
USA economy.
Conceptual Problems in Real GDP
Household Production
GDP does not measure products and services
households provide for themselves such as
cleaning or house maintenance. If someone is
hired to do these jobs for a household, that is
counted as part of GDP.
Underground and Illegal Production
GDP can only count economic activity that
leaves a paper trail. Any economic activity that
is not reported is not counted.
Conceptual Problems in Real GDP
Leisure
Activities that take place during non working
time are valuable, just not counted as part of
GDP. Again, there is no way to count such
activities.
The GDP Accounts Ignore “Bads
Some argue that adverse production such as
pollution damage or use of non renewable
resources should be subtracted from GDP
figures. Once again, problems counting such
things have them omitted from GDP data.
International Comparisons of Real GDP
International comparisons of real GDP and
GNP may not be totally accurate because of
differences in methods of collection and the
conceptual problems described earlier.
Per capita real GNP is a country’s real GNP
divided by its population.
Per capita real GNP adjusts national income
measures by the population, indicating how
much was produced per person.
Care must be exercised in interpreting per
capita real GNP as straightforward
international comparison data for well-being.
Even with its measurement problems, international
comparisons of GDP show stark contrasts between
nations as seen in Exhibit 6-10 on page 140.