GDP (GROSS DOMESTIC PRODUCT)

Economists traditionally use gross domestic product (GDP) to measure economic progress. If GDP is rising, the economy
is in solid shape, and the nation is moving forward. On the other hand, if gross domestic product is falling, the economy
might be in trouble, and the nation is losing ground. Two consecutive quarters of negative GDP typically defines
an economic recession.

What Is GDP?
Gross domestic product is equal to the total monetary value of all final goods and services that have been exchanged
within a specific country (economy) over a set period of time. For the United States, GDP usually means the annual
dollar-amount value of all purchased goods and services, including purchases from private for-profit, non-profit, and
government sectors. If you buy a roast chicken for $10, for example, GDP increases by $10.

 Gross Domestic Product is the dollar value of all goods and services that have changed hands
throughout an economy.
 Increasing GDP is a sign of economic strength, and negative GDP indicates economic weakness.
 GDP can offer false information when it results from economic destruction—such as a car
accident or natural disaster—rather than truly productive activity.
 Genuine Progress Indicator is designed to improve on GDP by including more variables in the
calculation.

How GDP Misses the Mark

GDP can increase after a car accident or a major flood. GDP can grow rapidly during a war or after a
terrorist attack. If all of Chicago caught fire once again and burnt to the ground, the rebuilding effort just
might boost GDP. This is because GDP is very susceptible to the broken window fallacy—false signals of
rising prosperity when obvious destruction has taken place.

However, from the perspective of a citizen living with the day-to-day realities of life, GDP can be rather
misleading, which is why the genuine progress indicator (GPI) was created in 1995 by a socially
responsible think tank called Redefining Progress. The indicator was developed as an alternative to the
traditional GDP measure of a nation's economic and social health. 

GPI Variables
Although GPI and GDP calculations are based on the same personal consumption
data, GPI provides adjustment factors—variables designed to apply monetary values to non-
monetary aspects of the economy. The variables fall into the following general categories:

 Personal consumption
 Income distribution 
 Housework, volunteering, and higher education
 Service of consumer durables and infrastructure 
 Crime
 Pollution
 Long-term environmental damage 
 Changes in leisure time –
GPI (Genuine progress indicator)

 The genuine progress indicator (GPI) is a national-level measure of economic growth and
prosperity.
 GPI is an alternative metric to GDP but which accounts for externalities such as pollution.
 As such, GPI is considered to be a better measure of growth from the perspective of green or
social economics.

The relationship between GDP and GPI mimics the relationship between the gross profit and net profit of a
company. The net profit is the gross profit minus the costs incurred, while the GPI is the GDP (value of all
goods and services produced) minus the environmental and social costs. Accordingly, the GPI will be zero
if the financial costs of poverty and pollution equal the financial gains in production of goods and services,
all other factors being constant.

GPI= GDP- the environmental and social costs