Raphaela Mena

rmena@purdue.edu
June 29, 2015
Assignment 2
GDP is defined in my textbook as the total market value of all goods
produced within a country. Specifically it is the market value of new items
and those made for final use. We measure GDP by either measuring
spending (using the expenditure approach) or measuring income (by the
income approach).
Similarly the article defines GDP as a measurement of a nations well being.
It is a measure of the total value of all goods and services made in a country
over a year-which is also the total incomes of people within that country.
These definitions are in line with one another, though the textbook is more
specific about what is and is not counted for GDP. For example intermediate
goods, stocks, and bonds are not considered in calculating it.
The author notes three issues as the distributional, feminist, and
environmental critiques.
With the distributional case, we may have a skewed average income. It only
takes a select few wealthy individuals to increase the average income
significantly. Therefore this is not an exceptionally accurate measure of the
standard of living for most people in the country.
In the feminist criticism he asserts that GDP only measures goods and
services produced for sale, and not for consumption by a family. There are
many goods that go uncounted for when calculating GDP (such as cooking
meals and cleaning), as they do not have market prices.
Lastly he describes an environmental critique, as national output does not
account for natural changes in our environment. Again it is undercounting
natural goods and services. It is erroneous as it also measures what is gained
from the environment and ignoring what is lost.
I do find these convincing as all three occur in large enough numbers to have
a significant impact on perceived GDP. (Income is in fact distributed
unevenly, a lot of people produce items that never are sold for profit, and the
environment is consistently supplying resources.)
I think we continue to use GDP (and GDP per capita) for simplicitys sake.
(Though we sacrifice a lot of potentially valuable information in order to keep
things simple.) It measures many unique items in terms of one item: money.

He says our three alternatives to this measurement are to 1) calculate GDP

per capita and account for what GDP is lacking and add it. 2) Create an
alternate single index method such as GPI or HDI. 3) Forfeit the idea of a
single measurement to understand economic life.
I think the first solution will be the most efficient as it would account for the
known items lacking in GDP, without a complete overhaul of the system in
place. I believe GDP is fairly accurate and this solution would be fine tuning
it.
I do not think we should abandon using a single number to describe a
countrys wealth. Though it may be erroneous, it gives a rough overview of
nations standing and can be easily interpreted-unlike the language of
money. I also do not think that replacing GDP with another number will be of
benefit as these calculations are all subject to varying degrees of error.