Senator Robert Kennedy running for President in 1968 once remarked that: “The gr

Question

Senator Robert Kennedy running for President in 1968 once remarked that:

“The gross [domestic] product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.”

Despite this criticism, macro-economists tend to use real GDP per person more or less as a gold standard measure of the standard of living across countries. GDP might not be perfect, but it is still the best measure of economic activity that we have. Critics argue that other variables such as life expectancy, education, and income inequality are better measures of standard of living across countries.

Based on the following publication by the Federal Reserve Bank of St. Louis, answer the following questions:

1. Why is real GDP a better measure of economic growth than nominal GDP?

2. Why is growth important?

3. Explain why GDP is better suited to measure economic output and growth than well-being.

4. What are some economic activities that are not included in GDP because they occur outside formal markets?

5. Finally, suggest an alternative measure of well-being and justify why you believe it to be a good measure of well-being.

Explanation / Answer

1. Real GDP is better than Nominal GDP because it is adjusted for inflation and provides an indicator for the true growth of country. If the inflation is high nominal GDP will be higher. However inflation reduces growth but nominal GDP would give a misleading information. Real GDP is Inflation Adjusted Growth.
2. Higher growth stimulates the economy, increases per capita income, reduces unemployment, and increases the overall development of a country. It also helps in reducing the external borrowing of country, reduces the fiscal deficit and also in case of need the country can borrow at lower rates from foreign.
3. GDP calculation is not focussed on well-being because expenditure on subsidies, health, education welfare schemes are deducted from GDP as they don't represent economic growth. However Global happiness index and Human development Index provide better understanding about human well-being than GDP. GDP is focussed on the objective of economic growth and increasing national income. Well-being is assumed to be the by product. However as per the GINI index the rich poor divide has increased, which states that the economic growth has infarct benefited a very small section of society. as majority of middle class and poor have not achieved high level of growth.
4. Trading in black market which is part of grey economy is not included in GDP. Transfer of money from abroad or non-residents is not included in GDP they are not produced within the boundary of the country.
5. Organisation for Economic Co-operation and Development (OECD) better life index is a better measure of well-being as i focuses on income, housing, job security, work life balance, safety ( murder and assaults),environment, health , governance, education, community ,etc. It is unlike GDP which focusses on domestic and government spending, imports and exports and investments.

Best of Luck. God Bless

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.