Question

Give three criticisms of nominal GDP as a measure of output.

Answer 1

Criticisms of nominal GDP as a measure of output:

1. GDP does account for economic bads like pollution that takes place during the production of the goods. While no subtractions to GDP are made for their harmful effects, market transactions made in an effort to correct the bad effects are added to GDP.
2. GDP does not include barter and cash transactions that take place outside of recorded marketplaces are referred to as the underground economy. These activities are sometimes legal ones that are undertaken so as to avoid taxes and sometimes they are outright illegal acts, such as trafficking in illegal drugs.
3. A change in quality or new products added as a replacement of old ones are also not considered in GDP statistics. Many products, such as cars and medical devices, are of higher quality and offer better features than what was available previously. Many consumer electronics, such as cell phones and DVD players, did not exist until recently.