Defining GDP
The Gross Domestic Product is the market
value of all final goods and services
produced within a specified period of time.
Defining GDP
There are several measures of GDP:
Defining GDP
There are several measures of GDP:
Actual GDP: value of all final goods and
services that the economy ACTUALLY
produced during a given period of time.
This level of output may be equal, greater,
or less than the presumed full employment
level of output.
Defining GDP
Potential GDP: real value of goods and
services that the economy CAN produce
during a given period of time (full
employment of output is presumed)
GDP
Real GDP is GDP after we account for
inflation.
GDPReal=[(GDPnominal)/GDP deflator]*100
Defining GDP
GDP gap is the difference between the
potential and the actual
GDP gap =potential GDP - Actual GDP
Shortcomings of GDP as a measure of
welfare
 It is an underestimation of the output because
of:
 household work (non-market activities)
Shortcomings of GDP as a measure of
welfare

It is an underestimation of the output because of:
 household work (non-market activities
 volunteer activities
Shortcomings of GDP as a measure of
welfare

It is an underestimation of the output because of:
 household work (non-market activities)
 volunteer activities
 do it yourself work
Shortcomings of GDP as a measure of
welfare

It is an underestimation of the output because of:
 household work (non-market activities)
 volunteer activities
 do it yourself work
 increase in leisure
Shortcomings of GDP as a measure of
welfare

It is an underestimation of the output because of:
 household work (non-market activities)
 volunteer activities
 do it yourself work
 increase in leisure
• product improvement
Shortcomings of GDP as a measure of
welfare
 It does not show the higher standard of living
because of better :
 environment
Shortcomings of GDP as a measure of
welfare

It does not show the higher standard of living because of the exclusion of better :
 environment
 protection
Shortcomings of GDP as a measure of
welfare
 Also, it is an underestimation of the output of
goods and services because some of the goods
and services that are produced by the
government are sold at cost. They do not
represent their market values.