GDP

GDP

GDP

What is GDP? Does GDP correctly describe your personal economic well being? Does it adequately explain the overall economic well being of your country?

Gross Domestic Product (GDP)

The official measure of total output of goods and services in an economy is known as the gross domestic product (GDP) (Messinger 2007: 74-99). The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living. Critics of using GDP as an economic measure say the statistic does not take into account the underground economy - transactions that, for whatever reason, are not reported to the government. Others say that GDP is not intended to gauge material well-being, but serves as a measure of a nation's productivity, which is unrelated. (Knack 2007: 1251-1288)

Personal Economic Well Being

GDP is a measure of the aggregate marketed income of a society, and most of its proposed substitutes (such as the GPI) are also primarily measures of adjusted average annual "income" flows (where the adjustments are meant to capture issues (such as environmental degradation) that GDP now ignores) (Messinger 2007: 74-99). However, "income" is a flow variable that does not directly consider the aggregate value of the bequest which this generation will leave to its descendants. Although those now alive clearly care about the level of their own consumption, they also care (in varying degrees) about the well-being of future generations. Furthermore, although trends in average income are important, individuals are justifiably concerned about the degree to which they personally will share in the prosperity of the average, and the degree to which their personal economic future is secure. (Boskin 2009: 16-25)

The starting point for this component of the index is aggregate real personal consumption per capita. Estimates of personal consumption per capita, expressed in national currency units, and in constant prices (base years differ among countries).Estimates are more imprecise when one considers the value of a number of other factors that also influence consumption flows, such as leisure, regrettables, the underground economy and life expectancy. These factors are discussed below, with approximate estimates of their value, in some cases. At this stage in the development of the index of economic well-being, our preference is to include, rather than exclude, imprecise measures. Since omitting a variable would implicitly set its value to zero, an imprecise measure is likely to embody a smaller error than omitting a variable. However, there is no estimate available at all, for some countries, and omission is sometimes unavoidable. (Messinger 2007: 74-99)

Economic Well Being

Earlier versions of the index of economic well-being for UK factored in estimates of the underground economy. These estimates were based on benchmark estimates by Statistics UK, the Bureau of Economic ...