GDP and Economic Well-Being

Review section 3 of the Macroeconomics chapter assigned in 2.1. Learn about the shortcomings of GDP as a measure of well-being. As we will see, GDP is an imperfect measure of happiness as it focuses exclusively on the material well-being of a country's citizens. Factors such as the quality of healthcare, education, and the environment, are not explicitly covered by GDP.

Conceptual Problems with Real GDP

Leisure

Leisure is an economic good. All other things being equal, more leisure is better than less leisure. But all other things are not likely to be equal when it comes to consuming leisure. Consuming more leisure means supplying less work effort. And that means producing less GDP. If everyone decided to work 10% fewer hours, GDP would fall. But that would not mean that people were worse off. In fact, their choice of more leisure would suggest they prefer the extra leisure to the goods and services they give up by consuming it. Consequently, a reduction in GDP would be accompanied by an increase in satisfaction, not a reduction.