CHAPTER 5: Shortcomings of GDP

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CHAPTER 5 Shortcomings of GDP

• GDP Excludes
• Unpaid work
• Homemakers, parents, do-it-yourselfers,
  volunteers
• Used goods
• Financial transactions
• Buying and selling of securities
• Government transfer payments
• Private transfer payments
• Underground economy
• Avoiding taxes, hiding illegal activity

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MACROECONOMICSCalculating GDP

• Underground Economy
• Ontarios construction industry
• Average annual underground income 1998-2000
  2.395 billion
• Approximately 20 of total construction income
• Average annual loss to government 1.259
  billion
• Income and other taxes
• Workers Compensation Board

From www.undergroundeconomy.ca
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MACROECONOMICSShortcomings of GDP

• No effect on GDP
• Helping a neighbour
• Growing own food
• Bike for transportation

• Increase in GDP
• Car accidents
• Alcoholism
• Natural disasters

GDP measures economic activity,not human welfare
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MACROECONOMICSMeasuring Human Welfare

• Standard of Living
• The quality and quantity of goods and services
  available to society.
• Usually measured as GDP per capita
• GDP per capita Real GDP / population

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MACROECONOMICSMeasuring Human Welfare

• Quality of Life
• The well-being of a population
• Includes subjective factors such as leisure,
  safety, social life, mental health, environmental
  quality, etc.
• Human Development Index (HDI) Pakistani
  economist Mahbub ul Haq

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Human Development Index (HDI)

• Measures 3 areas
• Long and healthy life
• Level of education
• Standard of living

• Measured by
• Life expectancy at birth
• Adult literacy rate
• School enrollment ratio
• GDP per capita

Canadas HDI