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GDP is the sum of all income earned in a country during a year. Alternatively, it can be thought of as the value of all production in an economy during a year. But do income and production measure happiness? The way we measure GDP can both overstate and understate people’s happiness and well-being. It understates economic activity and well-being when it doesn’t take into account production that is not exchanged in a market (grandma providing free baby-sitting) and leisure time. It overstates well-being when two otherwise identical activities are measured the same even though one produces more pollution.
Reply to these questions to begin your discussion:
Should we continue to measure GDP as we do now? After all, the current way of measurement has been used over time, so we can make historical comparisons. But are there problems with GDP that should be fixed? If you don’t think GDP should be changed, explain your reasoning. If you think it should be changed, what changes would you recommend, and why? +500 words include references citation in text is APA
GDP is an important economic measure that has been used over time to gauge the overall performance of a nation’s economy. However, it is not without its flaws and limitations, which need to be addressed if GDP is to continue as the primary measure of economic activity and well-being.
The most significant problem with GDP as a measurement tool is that it does not take into account production or activities that are not exchanged in markets. This includes activities such as volunteer work, homemaking, caregiving, or leisure activities like rest and relaxation. These activities can help increase people’s well-being but are not accounted for when measuring GDP. Furthermore, GDP also fails to capture the negative externalities caused by some economic activity—pollution created by manufacturing processes for example—which means it may overestimate the actual level of well-being generated from certain types of production.
Given these issues with GDP as a measure of economic activity and well-being, there are several potential changes that could be made in order to improve its accuracy while still maintaining the ability to compare performance across different time periods. One possible change would be to include measures capturing non-market activities in calculating GDP; this could involve either direct surveys or examining changes in total hours worked along with wage rate data in order better understand how these types of services contribute towards people’s happiness and well-being. Additionally, incorporating environmental factors into calculation methods could make sure that any negative externalities associated with certain forms of production are accurately weighed against their positive contributions (Krugman & Wells 2019). Finally, measures of inequality should also be taken into consideration when assessing levels of wealth creation within a given country since having large disparities between rich and poor citizens can redistribute gains from growth away from those most disadvantaged (Romer 2012).
In conclusion then, although continuing to use GDP as our primary method for measuring economic output carries certain advantages due to its long-term track record for comparison purposes; there are valid concerns regarding its accuracy which must be addressed if we hope for more accurate measures going forward. By taking steps such as including non-market contributions alongside environmental considerations when calculating GPD levels we can ensure our measurements represent true levels of human welfare and progress rather than simply financial gains alone.
References:
Krugman P., & Wells R., Economics: Principles & Policy 2019 Edition South – Western Cengage Learning Page 478–481
Romer D., Advanced Macroeconomics 2012 McGraw Hill Page 324–327