Download Shortcomings of GDP

Shortcomings of GDP
Part III of Unit 3
Measuring domestic output, national
income and the price level
GDP Understated
 GDP does not measure some very useful
output because it is unpaid (homemaker’s
services, parental child care, volunteer
efforts, home improvement projects (labor
done by homeowner))
 GDP does not measure improvements in
product quality or make allowances for
increased leisure time
 GDP does not measure improved living
conditions as a result of more leisure time
 GDP makes no value adjustments for
changes in the composition of output or
the distribution of income
 Nominal GDP simply adds the dollar value of
what is produced; it makes no difference if the
product is guns or butter.
 GDP figures do not provide information about
how the income is distributed
 Per Capita GDP is a more accurate way to
measure performance (real GDP /
population)
 The Underground Economy is not counted
 Illegal activities, unreported tips, cash
only jobs, reporting only a portion of
profits
 Value is estimated to be an additional 8%
of GDP
GDP Overstated
 The harmful effects of pollution are not
deducted from GDP
 Oil spills, increased incidence of cancer,
destruction of habitat for wildlife, the loss of a
clear unobstructed view
 GDP does include payments made for
cleaning up the oil spills and the cost of
health care for the cancer victim