Check your knowledge about GDP



We try to measure well-being in terms of economics and encounter some conflicting social issues not measured by GDP. Clifford Cobb, Ted Halstead and Jonathan Rowe point out that teenagers spend 5-10 minutes a day talking to dad and watch television three hours a day. Talking to their parents adds nothing to the GDP, but watching MTV turns them into ardent GDP enhancing consumers. They write:

Growth can be social decline by another name. Divorce, for example, adds a small fortune in lawyers’ bills, the need for second households, transportation and counseling for kids, and so on. Divorce lawyers alone take in probably several billion dollars a year, and possibly a good deal more. Divorce also provides a major boost for the real-estate industry. “Unfortunately, divorce is a big part of our business. It means one [home] to sell and sometimes two to buy,” a realtor in suburban Chicago told the Chicago Tribune.

By the curious standard of the GDP, “the nation’s economic hero” is a terminal cancer patient who is going through a costly divorce. The happiest event is an earthquake or a hurricane. The most desirable habitat is a multibillion-dollar Superfund site. All these add to the GDP, because they cause money to change hands. It is as if a business keeps a balance sheet by merely adding up all “transactions,” without distinguishing between income and expenses, or between assets and liabilities.
So far I put GDP in perspective. Khan Academy to the rescue: let's go to the economic side of GDP (the "Y") to understand its components. 

Starting with the “I,” it needs explaining what that means. The “I” stands for what firms invest to get their product (widgets) out: labor to make the widgets, as well as machinery, a building, supplies to construct it are all factors. The “C” stands for what households buy. The "G" stands for government expenses, and "NX" is the difference between imports and exports. NX can be a positive or negative.

Following are some examples for you to identify which part / parts of the equation they belong in.

Give your answers and I will discuss those next week