What are the problems of the real GDP in macroeconomics?


What are the problems of the real GDP in macroeconomics?

Real Gross Domestic Product

The real Gross Domestic Product (GDP) is the value of the real value finished goods and services produced within the boundaries of a country in a financial year. The real GDP is calculated by dividing the nominal GDP by the level of prices. The real GDP is a better measure of economic well being than the nominal GDP.

Answer and Explanation:

The problems associated with the real GDP are as follows:

- The real GDP does not include leisure which is considered as an economic good. If an individual wants to work some hours less than the required, the GDP would fall but at the same time there is increase in level of satisfaction or relief experienced by the individual. So, the GDP has been reduced but at the same time, the satisfaction has been increased which is not considered in the calculation of GDP.

-The real GDP does not include the value of efforts and time taken to cook the food for one self or for the family members, to clean own house, to wash own clothes and cars and other household activities.

-The real GDP does not include money which is earned from some illegal activities such as gambling, tax evasion or some other underground activities.

-Real GDP does not consider the human happiness.

Learn more about this topic:

Gross Domestic Product: Definition and Components

from Economics 102: Macroeconomics

Chapter 4 / Lesson 3

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