Question

GDP Doesn’t Include Proceeds of Crime. Should It?

When the U.S. calculates its gross domestic product, it only includes things that are legal. But if the wares of drug dealers, pimps, bookies, and other black-market denizens were included, the GDP would expand by more than 1%, according to one estimate. It would also align our national accounts more closely with those of the European Union, whose members already incorporate some illegal activities in their tallies.

Countries all over the world measure the size and structure of their economies based on international standards published by the United Nations and known as the System of National Accounts, or SNA. “It’s the set of recommendations every country uses across the world,” said James Tebrake, assistant director of the statistics department of the International Monetary Fund. “The key thing is we all do it the same way so we can compare the U.S. economy to the Canadian economy to the European economy.”

GDP, one of several metrics in the SNA… [is] the main measure of economic output, and it typically includes things like clothing, food, and housing. But the SNA has long recommended including illegal activities as well because, it argues, omitting them distorts a nation’s GDP, undermines its monetary policies, and upsets the uniformity of the accounts. “If France does not include illegal activities, and Germany does, the German economy will be bigger,” Mr. Tebrake said.

In the past, countries resisted accounting for illegal goods and services because of the difficulty of assessing their value and because they assumed the activity might not be significant. But Canada has found that accounting for illicit sales of cannabis alone would add around 0.4% to its GDP. The U.K. has estimated that prostitution and illegal drugs represent around 0.4% of its GDP. And in the U.S., Rachel Soloveichik, a research economist with the Bureau of Economic Analysis, has estimated that in 2017, illegal activities would have added more than 1% to the GDP. She presented her analysis last month at the IMF Statistical Forum.

Adapted from: https://www.wsj.com/articles/gdp-doesnt-include-proceeds-of-crime-should-it-11575628201 Date Accessed: 12/12/2019

QUESTION ONE                                                                                                        

1. Discuss the FOUR (4) elements of the definition of Gross Domestic Product.                                                                                              

2. With reference to the extract, discuss the challenges encountered if one uses GDP as a measure of economic performance.                                                                                   

Answer 1

The gross domestic product exhibits element like consumptions, investment, government spending and net exports which cumulatively derive the GDP. These elements are important for growth in GDP as higher investment leads to higher money supply, higher government spending boosts national income, also higher national income leads to better consumption, also higher net exports leads to better forex reserves which all leads to real GDP growth.

GDP data has some disadvantages and doesn't account for following :

• Distribution of goods is not accounted
• Makes no adjustments for lesiure time
• Counts only goods from official organised markets
• Doesn't count unpaid voluntary work
• Doesnt take pollution costs into action.
• Doesn't account for happiness and living standards.

PLEASE UPVOTE INCASE YOU LIKED THE ANSWER WILL BE ENCOURAGING FOR US THANKYOU VERY MUCH ALL THE BEST IN FUTURE