Respond to both students separately with a minimum of 100 words each!!!
Week 2 Discussion Post2: Gross Domestic Product (GDP) is the broadest measure of output for an economy. However, GDP does not perfectly measure well-being of a nation and its citizens’ welfare. Discuss what GDP is and what it measures? Discuss what the shortcomings (limitations) of GDP as a measure of well-being and welfare of a nation are?
GDP is the measure of a nation’s wealth. By exact definition, real gross domestic product (real GDP) is “a measure of all the final goods and services produced during a specific period of time adjusted to eliminate price change effects” (Rittenberg). GDP has four main components. These components are personal consumption, private domestic investment, government purchases, and net exports.
Things such as over-fishing in the ocean and pollution from factories and vehicles decreases the quality of life and the production of these things aren’t taken into consideration. The GDP also does not take into account any wealth distributions throughout the economy. The black market spending isn’t considered either so, the opioid epidemic that has a huge negative impact on overall social well-being (Quickonomics). One really good example is that when the crime is high people may have to buy security systems which will raise the GDP of the country but the crime rate being higher, doesn’t make the social welfare better or life more comfortable.
Today, the most commonly cited measure of national output is Gross Domestic Product (GDP). This is defined as: the market value of all final goods and services produced within a country’s borders during a year.
GDP is a measure of final goods and services produced in a given year. In measuring GDP, we have; to: combine the values of cars, socks, TVs, DVD players, socks, apples, and PCs. How does one compare Apples to PCs? To resolve issues such as this, the contribution of each item to total output is measured by its market value. If a new car sells for $20,000 and a new computer sells for $1,000, each of these new cars contributes as much to GDP as would the production of 20 new computers. This method defines the relative “value” of each commodity as the amount that consumers are willing to pay for an additional unit of each good.
GROSS DOMESTIC PRODUCT
Perhaps the most significant shortcoming of GDP as a measure of economic growth is its inclusion of government spending alongside other voluntary market transactions. This detracts from GDP’s usefulness as a measure of economic growth because government expenditures are not necessarily beneficial to social welfare, or at least not as beneficial as their cost would indicate.