Question

Discuss how output, spending, income, and growth are measured in the U.S. What are some limitations of GDP as a measurement tool?
Reply to at least 2 of your classmates or your instructor. Be constructive and professional in your responses.

Answer 1

Different methods can be used to measure economic growth, such as the Gross National Product (GNP) and Gross Domestic Product (GDP). Gross Domestic Product estimates the value of domestically manufactured goods and services. Gross National Product calculates the value of nation-produced goods and services (GDP) and foreign-investment income.
Many economists say total expenditure is a function of productive output. Though GDP is widely used, it does not, alone, indicate an economy's health.

GDP represents only the value of all finished goods produced within a given period of time in an economy. There are multiple ways to quantify and assess GDP, but no metric of health or well-being is included in either. Although this does not necessarily mean that GDP can not be a good indicator of welfare, it should be borne in mind that it is used as a "proxy of a proxy," as it greatly affects its validity

As a consequence, it does not take into account domestic or voluntary work, even though such activities have a significant positive impact on social welfare as they complement the market economy and thus raise living standards. On the other hand, GDP does not include transactions on the black market or other illegal activities which may have a significant negative impact on overall social well-being. If there is a high degree of disparity in terms of income distribution, most people don't really benefit from an increased economic production because they can't afford to buy most of the goods and services.

Because GDP measures the value of all finished goods and services within an economy, it also includes items that may affect social welfare negatively. Think of a country that contains most of its GDP with an extremely strong armaments industry. If the weapons are sold and used within the nation itself, social welfare will most likely decrease overall. Naturally this also extends to other goods and services which may have negative effects on society.