This week we have looked at the definition of GDP, the ways we can divide up GDP into categories of goods and services for closer study, the difference between nominal and real GDP, and the problems with using GDP as a measure of living standards. Let’s focus on that last topic, because it allows for opinion and debate. As you’ve seen, GDP is far from a perfect method of measurement. Nevertheless, it is probably the most widely used macroeconomic number in the world. Almost every time someone talks about living standards or economic growth or recessions or booming economies, they are using numbers based on GDP. What do you think about this? Is GDP good enough, so that we should continue to use it as the main indicator of economic performance? Or should we make an effort to replace it with something else? If it were replaced, what would you like the “something else” to measure?
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