Gross Domestic Product (GDP)

Paper Summary:

GDP, or gross domestic product, measures the output of goods and services within an economy by factors of production, e.g. labour, within a twelve month period. This paper focuses on explaining what GDP is, methods of measuring GDP and its limitations as a measure for the quality of life of residents.

From the Paper:

"There are other limitations of GDP's usefulness as an indicator of the quality of life that must also be evaluated. For example, GDP may not accurately reflect the total economic activity of a nation because items such as DIY and household labour (housewifery) are excluded as is the underground economy. Activities such as drugs and prostitution go unrecorded. Although such activities are illegal they are a highly lucrative business and the expenditure on these goods or services may amount to a sizeable sum that has therefore been withdrawn from the circular flow and disappeared into this underground sector from the national accounts. We cannot know for sure the exact amount that has been withdrawn but we can estimate this by analysing the demand for cash in the economy as illegal activity is usually conducted with cash."

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