Macro-Economics
Quiz 1
Question: How the GDP is not a good measure of welfare?
Answer: GDP (gross domestic product) is a measure of the final goods and services produced
in a specific time. Technically higher GDP is a good sign for a country. However, GDP is not a
good measure of well-being. Many things contribute to a good life but GDP doesn’t measure it.
GDP uses market values of goods and services and it does not calculate values of the activities
happening out of the market. For instance, the GDP won’t calculate the value of the goods and
services being produced at homes, if a chef makes a meal at the restaurant and sells it, GDP will
count it but if that chef is making a meal at her home, adding all those values to the raw
ingredients but GDP would not count or measure it.
The same goes for child care being provided at daycare centers will be measured or counted in
GDP but child care at homes won’t be included in GDP. Volunteer work is also adding to the
well-being of society but GDP does no values it.
Another limitation of the GDP we can say is that it does not focus on the quality of the
environment, for example, if an industry is producing goods and services in huge amount, it is
adding value to the GDP but if the industry is not taking into consideration about the pollution
they are producing in manufacturing their product, it is bad for the well-being of the