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LIMITATIONS OF GDP 1. ONLY MEASURES MARKET ACTIVITY Baking a cake at home is non-market, as are raising your own kids, or painting your house 2. DISASTER REPAIRS COUNT AS GDP House burns down, hired workers, rebuild it, this is added to GDP. While Hurricane Katrina was technically good for GDP, it’s bad for society as a whole 3. ECOLOGICAL COSTS ARE IGNORED No cost to the lost shade of a tree, but tree’s lumber value will be in GDP. Strip mining has no negative costs according to GDP (micro economics calls them externalities) 4. UNPLEASANT COSTS ARE COUNTED Divorce, funeral, illness, security equipment, again are all considered to be “positive contributions” to GDP. 5. MONETARY VALUE CHANGES Inflation changes the value of the U.S. dollar which unaccounted for will throw off assumptions of previous years’ GDP values. This is fixed by finding real values as opposed to nominal ones.