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Shortcomings of GDP

Shortcomings of GDP. Part III of Unit 3 Measuring domestic output, national income and the price level. GDP Understated.

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Shortcomings of GDP

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  1. Shortcomings of GDP Part III of Unit 3 Measuring domestic output, national income and the price level

  2. GDP Understated • GDP does not measure some very useful output because it is unpaid (homemaker’s services, parental child care, volunteer efforts, home improvement projects (labor done by homeowner)) • GDP does not measure improvements in product quality or make allowances for increased leisure time • GDP does not measure improved living conditions as a result of more leisure time

  3. GDP makes no value adjustments for changes in the composition of output or the distribution of income • Nominal GDP simply adds the dollar value of what is produced; it makes no difference if the product is guns or butter. • GDP figures do not provide information about how the income is distributed • Per Capita GDP is a more accurate way to measure performance (real GDP / population)

  4. The Underground Economy is not counted • Illegal activities, unreported tips, cash only jobs, reporting only a portion of profits • Value is estimated to be an additional 8% of GDP

  5. GDP Overstated • The harmful effects of pollution are not deducted from GDP • Oil spills, increased incidence of cancer, destruction of habitat for wildlife, the loss of a clear unobstructed view • GDP does include payments made for cleaning up the oil spills and the cost of health care for the cancer victim

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