GDP and Economic Well-Being – Principles of Macroeconomics
Read 4 answers by scientists with 2 recommendations from their colleagues to the Which Is A Better Measure Of Economic Well-being Real Gdp Or Nominal Gdp? This link suggests that real GDP is better, and gives the reasons behind it : .com/exam-guide/cfa-level-1/macroeconomics/balamut.info GDP is the measure most often used to assess the economic well-being of a country. than those associated with adjusting for price level changes, in using real GDP to The only difference is that the value of your time would not have been. But with the ONS now deciding to give "greater prominence" to broader But should our total output increase at the same rate as our population, recession wasn't as bad as we first thought but have we felt the difference? alongside GDP figures to measure our economic well-being, but they are likely to.
And most people seem to place a high value on these things. For all its faults, GDP does measure the production of most goods and services. And goods and services get produced, for the most part, because we want them. We might thus be safe in giving two cheers for GDP—and holding back the third in recognition of the conceptual difficulties that are inherent in using a single number to summarize the output of an entire economy.
In making such comparisons, it is important to keep in mind the general limitations to these measures of economic performance that we noted earlier. Further, countries use different methodologies for collecting and compiling data. We can conclude that Country A produced times more goods and services than did Country B. The data also attempt to adjust for nonmarket production such as that of rural families that grow their own food, make their own clothing, and produce other household goods and services themselves.
Certainly we must be cautious. But the fact that a task is difficult does not mean it is impossible. When the data suggest huge disparities in levels of GNP per capita, for example, we observe real differences in living standards.
Problems in the measurement of real GDP, in addition to problems encountered in converting from nominal to real GDP, stem from revisions in the data and the difficulty of measuring output in some sectors, particularly the service sector. What impact would each of the following have on real GDP?
What does GDP really tell us about economic growth?
Would economic well-being increase or decrease as a result? Spending on homeland security increases in response to a terrorist attack. In the popular lore, the Olympics provide an opportunity for the finest athletes in the world to compete with each other head-to-head on the basis of raw talent and hard work.
And yet, contenders from Laos tend to finish last or close to it in almost any event in which they compete. One Laotian athlete garnered the unenviable record of having been the slowest entrant in the nearly half-century long history of the kilometer walk. Why do Laotians fare so poorly and Americans so well, with athletes from other countries falling in between?
Johnson and Ayfer Ali have been able to predict with astonishing accuracy the number of medals different countries will win on the basis of a handful of factors, including population, climate, political structure, and real per capita GDP.
For example, they predicted that the United States would win medals in Athens and that is precisely how many the United States won. They predicted medals for the United States in Beijing; were won. They did not expect the Laotians to win any medals in either Athens or Beijing, and that was indeed the outcome.
The good news is that as the per capita real GDP in some relatively poor countries has risen, the improved living standards have led to increased Olympic medal counts. China, for instance, won 28 medals in and 63 in As the host for the games, it won an impressive total of medals. While not a perfect measure of the well-being of people in a country, per capita real GDP does tell us about the opportunities available to the average citizen in a country.
Americans would surely find it hard to imagine living at the level of consumption of the average Laotian. In The Progress Paradox: How Life Gets Better While People Feel Worse, essayist Gregg Easterbrook notes that a higher material standard of living is not associated with higher reported happiness. But, he concludes, the problems of prosperity seem less serious than those of poverty, and prosperity gives people and nations the means to address problems.
How well GDP measures the well-being of society (article) | Khan Academy
The Olympic medal count for each nation strongly reflects its average standard of living and hence the opportunities available to its citizens. Gregg Easterbrook, The Progress Paradox: Random House, ; Daniel K. Answer to Try It! Problem Real GDP would increase.
Assuming the people chose to increase their work effort and forgo the extra leisure, economic well-being would increase as well. No change in real GDP. For some people, economic well-being might increase and for others it might decrease, since inflation does not affect each person in the same way. Again, imagine two economies, but this time one has a ruler who gets 90 percent of what's produced, and everyone else subsists -- barely -- on what's left over. In the second, the distribution is considerably more equitable.
In both cases, GDP per capita will be the same, but it's clear which economy I'd rather live in. GDP isn't adjusted for pollution costs. If two economies have the same GDP per capita, but one has polluted air and water while the other doesn't, well-being will be different but GDP per capita won't capture it.
Big ideas at Davos: How to feed the hungry? The Davos discussion, however, is pointed at a different flaw in measured GDP: Think of a free app on your phone that you rely upon for traffic updates, directions, the weather, instantaneous information and so on. Because it's free, there's no way to use prices -- our willingness to pay for the good -- as a measure of how much we value it. As a result, GDP statistics won't capture the benefits we gain from free apps, just as it has difficulties accounting for changes in the quality of goods over time.
How can this be fixed? One remarkable change in the US. As women are now in the labor force, many of the services they used to produce in the nonmarket economy—like food preparation and child care—have shifted to some extent into the market economy, which makes the GDP appear larger even if more services are not actually being consumed. GDP has nothing to say about the level of inequality in society.
GDP per capita is only an average. GDP also has nothing in particular to say about the amount of variety available. If a family buys loaves of bread in a year, GDP does not care whether they are all white bread or whether the family can choose from wheat, rye, pumpernickel, and many others—GDP just looks at whether the total amount spent on bread is the same. Likewise, GDP has nothing much to say about which technology and products are available. The standard of living in, for example, or was not affected only by how much money people had—it was also affected by what they could buy.
No matter how much money you had inyou could not buy an iPhone or a personal computer. In certain cases, it is not clear that a rise in GDP is even a good thing. If a city is wrecked by a hurricane and then experiences a surge of rebuilding construction activity, it would be peculiar to claim that the hurricane was therefore economically beneficial. If people are led by a rising fear of crime to pay for installation of bars and burglar alarms on all their windows, it is hard to believe that this increase in GDP has made them better off.
Does a rise in GDP overstate or understate the rise in the standard of living? The fact that GDP per capita does not fully capture the broader idea of standard of living has led to a concern that the increases in GDP over time are illusory. It is theoretically possible that while GDP is rising, the standard of living could be falling if human health, environmental cleanliness, and other factors that are not included in GDP are worsening.
Fortunately, this fear appears to be overstated. In some ways, the rise in GDP actually understates the actual rise in the standard of living. For example, the typical workweek for a US worker has fallen over the last century from about 60 hours per week to less than 40 hours per week. Life expectancy and health have risen dramatically, and so has the average level of education.