Answer both questions 15 points each 1 The GDP is not neces

Answer both questions (15 points each): 1. The GDP is not neces the US. If you were redesigning the GDP measure, what two activities that are now counted in the GDP would you exclude, and what two activities that are currently not counted would you include.-and explain why for each of the four activities you cite. sarily an accurate measure of the standard of living or quality of life in

Solution

Answer:

I would exclude following activities from GDP:

(1) Government\'s spending on defense expenditure.

While military (defense) spending increases GDP, it does not increase the standard of living for American citizens. Therefore it overstates GDP.

(2) Government\'s spending on public goods that do not contribute to long run growth.

For example, if there is government spending for a local park beautification project, and all costs of project are directly paid by government, then it raises GDP but fails to contribute to economic growth. In that sense, GDP is overstated.

Next, I would include the following to GDP.

(1) Cost of negative externality or approximation thereof.

A negative externality example is pollution, which is the cost of environmental damage. This lowers society\'s welfare but is excluded from GDP, thus GDP fails to reflect its impact on resident\'s standard of living. Therefore GDP is understated.

(2) An approximated price of leisure

Adequate leisure improves labor productivity but this is excluded from GDP, therefore GDP is understated.