SHORTCOMINGS OF GDP
GDP isn’t perfect!!!
Problems with the GDP
•
GDP is one way to measure how well our
economy is doing…But it ain’t perfect!!!
There are four things that make GDP
imperfect:
1.
2.
3.
4.
Production not included
Treatment of Leisure Time
Human Costs & Benefits
Unproductive Production in
GDP
Production Excluded:
• There are things that are just not
included for GDP, even though you
are being productive.
1.Household production—Marge Simpson
in “The Simpsons”
2.Illegal Production—Drugs, Prostitution,
& Gambling
3.Underground Economy—Productive
Activity not reported to the government
(i.e. getting $$ “under the table,” sweat
shops, & child labor)
Treatment of Leisure
Time
• Differences in values and work
weeks
• A person can choose to work 40
hours per week or 20 hours per
week
Human Costs & Benefits
• Psychological (stress, anxiety,
& unhappiness)
• Physical danger (construction?)
• Some people love their
jobs…and others hate theirs.
• There’s no way to take that into
account when we measure GDP.
Unproductive Production
In GDP
•
•
•
•
National Defense (military)
Police Protection
Pollution Control
Environmental Clean-up
DOESN’T ACCURATELY MEASURE ECONMIC
WELL-BEING IN OUR COUNTRY
GDP: An Imperfect Counting System
• PROMPT:
• A little Hawthorne freshman student comes up to you one
day and tells you that GDP is a perfect way of measuring
our nation’s economic well-being, as he/she is trying to
impress you since you are a senior. (The Freshman
doesn’t know any better…and he/she hasn’t had the
privilege of being in my class yet). Therefore, rather than
laughing in his/her face, you take pity on the freshman.
Now, your job is to explain to the little Hawthorne
freshman that GDP measures economic growth, but at the
same time, it isn’t perfect. What would you tell the
freshman to make sure that he/she understands the
shortcomings of GDP.
• You must explain all four of the shortcomings of GDP in
your own words. Paraphrase what you read and put them
in your own words.
• Create the following table, and then inside each box, write
how you would answer the little Hawthorne freshman’s
question.
• Provide a symbol for each in it’s box.
Production that
isn’t Included
(Excluded)
Human Cost and
Benefits
Treatment of
Leisure Time
Unproductive
Production
Counted in GDP
Homework
• Read handout ‘GDP: An Imperfect Counting
System’ and complete worksheet
‘Shortcomings of GDP’ – Assignment #5