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Video transcript

in other videos we have already talked about the idea of GDP in some depth gross domestic product a measure of the aggregate goods and services produced in a country in a year but what we're going to discuss in this video is how good a measure GDP is and in particular some of the things that GDP does not measure so in general what's the motivation for wanting to know the aggregate goods and services produced by a country well you could view it as a sign of economic activity so it's economic economic activity you could view it as the size or influence of an economy size influence of economy and then if you take GDP and you divide by the number of people in a country you get things like GDP per capita GDP per capita we could view really as a GDP per head and this you could view as well that's an indicator of well-being with the idea that well if there's just more goods and services produced per person that maybe people and that country are going to be better off but as we already touched on what is it not measuring well one thing that GDP does not measure is non marketed goods what do I mean by non marketed goods so let's say that I have to go to the airport so this is the airport here my best drawing it's a terminal there's a plane that's the point of this isn't to draw an airport but you get the idea that's an airport and I need to go from my house to the airport if I call up a taxi or an uber or lyft or something like that and I take it to the airport so they drive me to that Airport that fare that they charge me that will be included in GDP on the other hand if I were to get my wife to drive me to the airport all of a sudden that would not be counted in GDP even though the exact same service has been performed someone took me in there from my house to the airport and that's because my wife or your roommate or your best friend giving you a ride is a non marketed service they're not trying to sell that service they're just doing that to you as a favor but it was a service provided to you but it would not be captured in GDP one that is often talked about is child care if that's my best drawing of a child really fast if you hire a babysitter or a few hire a nanny to take care of your child that should be included in GDP although if you yourself take care of your child that will not be included in GDP because once again you taking care of your child would be a non marketed service now the other thing that GDP does not include are illegal activity or you could even say under-the-table activity some of which is not illegal for example if someone were to pay their babysitter and if it doesn't get registered in taxes someplace well even that will not be reflected in the GDP number it's not an illegal activity but it should have officially been registered with the IRS and then it would have been counted as GDP but in this case it wouldn't have and also of course you have black markets illegal activity that for sure would not be included in GDP if someone were to illegally sell you fireworks let's say they're banned in your state and of course they're not going to report it to the government well of course that good and/or service is not going to be reflected in GDP but you might say okay that's all right you're gonna miss some things but directionally if GDP is growing especially if GDP per capita is growing surely that is a good thing and in general you're probably right it probably is a good thing but there's also things that GDP is not capturing it is not capturing even if you were able to measure non marketed goods and services or under-the-table or illegal activity it doesn't capture things like let's say pollution you could have a country whose GDP is growing very very fast but in the process the country gets very very polluted me that makes the quality of life go down in certain areas health is another issue in general countries with a high GDP per capita usually do have good health care mainly because of their they have more resources for health care but you want to look at that how how is the health trending in a country and then you could even think about stuff like stress or a feeling of community or support these are all things that would affect any human beings well-being but they are not of course captured in GDP now to appreciate the different ways of ranking countries in an attempt to get at well-being you could first of all look at GDP rankings so here are rankings by the World Bank for 2016 you see the United States is on top with 18.6 almost trillion dollars of GDP as measured by the World Bank and you see the ranking now if you wanted to go by per capita could you say hey this is this is this doesn't tell you how many people are there what matters is how much good how much per activity divided by the number of people if you want to really measure per person well-being well then you might look at something like this GDP per capita and notice here the United States is still quite high but it's nowhere near as high as Luxembourg the reason why Luxembourg didn't show up on the other list is it is a very very small country its population is very small compared to the United States same thing for Switzerland or for Macau now another thing that depreciate is this GDP per capita just takes the nominal GDP and divides it by the number of people there are in a country but it does not measure or indicate things like wealth inequality it's not that every person in Luxembourg gets exactly a hundred and three thousand dollars worth of goods and services depending on the country there might be more of a middle class or less of a middle class there might be more wealth inequality or less wealth inequality and once again that is not captured by GDP also even the GDP per capita doesn't really tell you how much you can buy with that per capita GDP and so that's why people look at things like purchase to power parity this is a sense of per capita GDP but adjusted for how much you could buy with those resources that are measured in US dollars so now all of a sudden Qatar at the top Qatar was pretty high but I guess you can buy more and get more goods and services with that nominal GDP per capita as measured in u.s. dollars in Qatar then you could say in the United States so I will leave you there there's no such thing as an absolutely perfect measure of economic activity much less well-being but GDP is the best measure that we have although I encourage you to think of others for example the UN has tried to measure happiness they have this ranking of happiness they have an annual world happiness report and I'm not going to go into all of the details but beyond GDP it also considers things like health or other measures of well-being and as you can see the countries at the top here tend to have fairly high GDP s but this ranking is not the same as the ranking that we saw on the GDP per capita with the purchase power parity and so these are all very interesting things to think about
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