What counts in GDP
Context for Use
The second part of a "time for telling" underscores the importance of transfer. After a new concept is introduced it is important for students to practice with the concept in a variety of contexts, in this case with a more challenging application exercise.
This activity is appropriate for an introductory economics course that includes conceptual understanding of GDP measurement. No prior understanding is required prior to the first part of the activity. Prior to the second part of the activity students should be familiar with the concepts of intermediate goods, transfers, used goods and non-market goods and services.
The first activity requires only 5 - 10 minutes. The second activity requires 20 - 30 minutes. There is no lower or upper limit to the class size.
This activity introduces students to concepts that underlie national product accounts: which economic activities are included in GDP? Students first make judgment calls about five economic activities. After direct instruction in which the concepts behind GDP measurement are introduced, students evaluate the effectiveness of GDP in measuring recent technological innovations.
Expected Student Learning Outcomes
Students will be able to identify the choices made and reasons for those choices in measuring national output. These include the omission of used items, transfers, and non-market goods and services and the treatment of intermediate goods.
Information Given to Students
Imagine that it is 1930 and you are on an economic committee to determine what to include in a new measure of economic output to be called Gross Domestic Product (or GDP). Which of the following would you choose to include (you may select more than one item)?
A) Garden care by homeowners
B) Sales of used cars
C) Fast food hamburgers
D) Glass used in new home construction
E) Dentist services
GDP handout 1 (Microsoft Word 2007 (.docx) 12kB Feb11 18)
Today people use the Internet for a wide variety of services. How should we count this increase in our well-being in GDP accounts?
A) The total expenditure on Internet access by households and businesses
B) The value of businesses that provide Internet services
C) The value of services that previously had a cost but now are nearly cost-free on the Internet
D) The value determined by a survey of households asking how much they would be willing to pay for Internet services now provided nearly cost-free
E) Expenditures on Internet access plus the value of advertising that lowers the cost of Internet access
GDP handout 2 (Microsoft Word 2007 (.docx) 12kB Feb11 18)
Teaching Notes and Tips
The second activity requires the students to consider the issues raised in the consideration of national product accounts. It demonstrates the difficulty in measuring national output, in particular for services and for those without clear market prices. Specifically, the Internet provides services that now are provided at low or no cost. If GDP is to be a measure of well-being, these new services are undercounted using traditional GDP measures.