Defining GDP

1
Defining GDP

• The Gross Domestic Product is the market value
  of all final goods and services produced within
  a specified period of time.

2
Defining GDP

• There are several measures of GDP

3
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.

4
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)

5
GDP

• Real GDP is GDP after we account for inflation.
• GDPReal(GDPnominal)/GDP deflator100

6
Defining GDP

• GDP gap is the difference between the potential
  and the actual
• GDP gap potential GDP - Actual GDP

7
Shortcomings of GDP as a measure of welfare

• It is an underestimation of the output because
  of
• household work (non-market activities)

8
Shortcomings of GDP as a measure of welfare

• It is an underestimation of the output because
  of
• household work (non-market activities
• volunteer activities

9
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

10
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

11
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

12
Shortcomings of GDP as a measure of welfare

• It does not show the higher standard of living
  because of better
• environment

13
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

14
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.