Measures of National Welfare and Prosperity

Question 1

Gross Domestic Product

Answer 1

Measures the size of an economy with consumption, investment, government spending, and net export

Question 2

Recession/Depression

Answer 2

Recession - Downturn in GDP for 2 consecutive quarters
Depression - Prolonged downturn in economic activity - usually 2 years or longer

Question 3

Problems with GDP

Answer 3

GDP only includes the real of monetized exchanges
Things that detract from welfare can increase GDP
- Example: Hurricanes increase GDP when government spends on relief

Question 4

Human Development Index

Answer 4

3 development objectives:
1. A long and healthy life (Average life expectancy)
2. Being educated (Mean years of schooling for adults + expected years of schooling for kids)
3. Having a decent standard of living (Gross national income GNI per capita)

Question 5

Problems with HDI

Answer 5

• Provides a limited perspective on human welfare
• Does not factor in environmental components

Question 6

Genuine Progress Indicator

Answer 6

Provides a fuller account of a nations welfare:
- Includes contributors and detractors to economic, social and environmental factors
- Each factor is measure in dollar value

Question 7

Problems with GPI

Answer 7

Coming up with values for everything requires assumptions and is infeasible to collect every year for every country

Question 8

Threshold theory

Answer 8

Every society goes through a period where economic growth increases welfare, but eventually GPI stops increasing as GDP increases because social and environmental costs increase

Question 9

Gross National Happiness

Answer 9

Measures a country’s success in its citizens happiness
- Involves collecting subjective surveys of average happiness
- Requires government spending on safety, security, education, etc.
- Hard to compare across countries/cultures