Preview

Gdp Is a Good Measure of Economic Progress

Good Essays
Open Document
Open Document
783 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Gdp Is a Good Measure of Economic Progress
Is GDP a good measure of economic progress?*
Olivier Vaury (École Normale Supérieure, Paris)

Every year, or even every quarter, economic growth figures are anticipated and scrutinised to assess the economic health of a country. In spite of abundant commentary in the media by politicians and economists, the very notion of economic growth remains elusive: who really knows what it really measures ? Yet the level of GDP (or GDP growth) is probably the most widely used indicator for piloting economic policies around the world and for making international comparisons.

When one says that “GDP growth reached 3% in 2002”, what does that mean ? Broadly speaking, GDP measures the amount of goods and services produced in a given place (a country, a region, etc.), in a given period of time (a year, a quarter, etc.). All goods and services ? Well, that’s where the whole issue lies!

Our point is that GDP includes goods and services that do not increase a country’s economic wealth, and, furthermore, excludes goods and services that do. Thus, the use of GDP as an indicator of economic progress is flawed and results in biases in international comparisons.

What GDP forgets

“Marry your cleaning person, and you will make GDP drop!”. This weird remark, made by the famous French economist Alfred Sauvy, points to the fact that GDP excludes (or significantly underestimates) goods and services produced outside the official market economy. The bits forgotten by GDP can be divided into three categories:

- Household production: marrying the cleaning person means transforming a standard marketed activity (house cleaning, paid at a given rate, etc.) into domestic work, not accounted for in GDP as there is no way to measure the value added by this service (no price paid). A priori, this change does not alter the level of service enjoyed by the newly married consumer (in both cases, house cleaning was made, by the same person; this example is used to point out the

You May Also Find These Documents Helpful

  • Good Essays

    GDP (Gross domestic product) is measured by the average income – the availability of goods and services produced within the company. If GDP falls it shrinks the economy e.g house prices decrease but if GDP rises it allows the economy to grow in affect house prices increase.…

    • 671 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Nt1310 Unit 4

    • 709 Words
    • 3 Pages

    The GDP is defined as the market value of all final goods and services provided within a country in a given period of time. The U.S. GDP being higher than it was 60 years ago shows that the U.S. if producing more goods and services and that the economy is improving. It does not however tell which goods and services are being produced or reflect the unemployment rate. Some limitations of the GDP include people what their output is as well as their down town, the products themselves whether it is the environmental effects or the quality of the products. The GDP is still a important tool because it measures the total output of the particular country. The GDP can be compared to itself from a different period to demonstrate how the economy has improved or worsened.…

    • 709 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Answer Key Quiz 1

    • 324 Words
    • 2 Pages

    The good is not included in GDP because GDP only counts the production of a good, not…

    • 324 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    ECN 204 Notes

    • 6284 Words
    • 26 Pages

    -GDP is a monetary measure, so that the relative values of a vast number of goods and services produced in different years can be compared…

    • 6284 Words
    • 26 Pages
    Good Essays
  • Good Essays

    The flaws of GDP are essential when learning about public policy, but it lean to be a good pointer, for the economic growth in the long run. Economic growth is exponential, where the supporter is resolute by the PPP annual GDP increase rate. Therefore, the differentiation in “the annual growth from country A to country B will multiply up over the years. For example, a growth rate of 5% seems similar to 3%, but over two decades, the first economy would have grown by 165%, the second only by 80%” (GDP Growth Definition, n.d., para3).…

    • 799 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Economics growth is, it the short run an increase in real GDP and in the long run an increase in the productive capacity of an economy (the maximum output that the economy can produce). GDP stands for Gross Domestic Product which is the country’s production of goods and services valued at market price in a given time period. Real GDP is when these figures are corrected for inflation using a base year (The UK uses 2003 as its base year). It can be measured in three different ways; the output measure is the value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government. The expenditure measure is the value of the goods and services purchased by households and by government, investment in machinery and buildings. It also includes the value of exports minus imports and finally the income method is the value of the income generated mostly in terms of profits and wages. Economic growth is often a result of low unemployment, which has an effect on the components of aggregate demand in that consumption will rise as when more people have a job, more people have more disposable income, savings and investment rise and with this productivity rises too. Long-term economic growth will arise from a continuous percentage increase in real GDP however it may not always be sustainable.…

    • 889 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    6. Economic growth is an increase in the capacity of a country to provide people with goods and services. It’s measured by GDP, the annual market value of all goods and services produced by all firms and organizations, foreign and domestic, operating in a country. It goes up with either a population increase, more production and…

    • 1438 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Due to the very complex methods used in estimating gross domestic product and the sheer enormity of the task, gross domestic product is very necessarily a less than perfect measure of a nation’s economic pulse. Nonetheless, measured gross domestic product certainly plays a very critical role in influencing government economic and social policies. Therefore, there is, quite appropriately, some degree of concern that a false impression of a nation’s material wellbeing may result from an imperfectly measured gross domestic product (Layton, Robinson, and Tucker 2009).…

    • 862 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    This memo is to all team members who have been assigned the task of determining the country 's economic health. This memo will explain how the team will recognize and realistically determine the tool is used to determine Gross Domestic Product (GDP) to size up goods and services, which are generated in the United States during a set time frame. The GDP measures the economic output of the country, which is closely monitored by the Federal Reserve to decide whether or not if the economy is growing to slow or fast. The GDP business cycle is determined by the number of people who is legally employed along with everything produced and purchased in the economy.…

    • 537 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    One method for measuring production is the Expenditure Method. In a capitalistic society most things are produced for sale, therefore, measuring the total expenditure of money is a way of measuring production. For example, knitting a sweater for your self is production, but it doesn’t get counted as GDP because it is never sold. Therefore if you count unpaid services such as cooking, cleaning, child rearing, and do-it yourself repairs as production, GDP stops being an accurate indicator of production. Likewise, if there is a long term shift from unpaid provisions of services to market, the trend toward increased market provisions of services may cloud the decrease in actual domestic production, resulting in an inflated reported GDP. This is especially a problem for economies which have shifted from production to service economies.…

    • 798 Words
    • 4 Pages
    Satisfactory Essays
  • Good Essays

    Discussion

    • 473 Words
    • 2 Pages

    Is GDP a good measure of economic well-being? Why, why not? What are its limitations? What are some…

    • 473 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    2. Why is GDP considered a limited measure of societal well-being and progress and outline two alternative measures that have been developed to address some of the limitations of GDP?…

    • 249 Words
    • 1 Page
    Satisfactory Essays
  • Better Essays

    What is a GDP and why is it so important? A GDP is one of the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period. When the GDP increased, its purpose was to benefit the entirety of all class sizes, instead of making everyone better off, it has made only a part of the country wealthier, as another part slips deeper into inevitable cycle of the working poor.…

    • 1019 Words
    • 5 Pages
    Better Essays
  • Good Essays

    On the other hand there are many costs of using GDP it ignores key variables like how depressing China is, it also counts negative and useless activity, it does not show the spread of wealth across the population and the income distribution. GDP also does not show a country’s debt, for example in Argentina around 15 years ago they took out a huge amount of debt and because of this new money, it looked like it was doing amazingly well with huge increases in GDP but at the moment they have been caught up with the debt and are…

    • 968 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Economic Growth

    • 1639 Words
    • 7 Pages

    Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to obviate the distorting effect of inflation on the price of the goods produced. Economic growth typically refers to growth of potential output, i.e., production at "full employment". It talks about how countries can advance their economies. Economic growth is defined as a positive change in the level of production of goods and services by a country over a certain period of time. Economic growth is often desirable for a country as a whole.…

    • 1639 Words
    • 7 Pages
    Good Essays