Asked by andres
Define Gross Domestic Product and explain one reason why it is an incomplete measure of national wealth in the United States.
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Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country’s borders over a specified period (usually a quarter or a year). It is commonly measured by the expenditure formula: GDP = C (consumption) + I (investment) + G (government spending) + NX (net exports).
One reason GDP is an incomplete measure of national wealth is that it records production flows but ignores changes in the country’s asset stocks — especially natural capital. For example, extracting oil or logging forests raises GDP today because those activities are economic output, but they deplete the underlying resource base. If the country does not invest enough to replace or compensate for that loss (through investments in infrastructure, human capital, or technological improvements), its true wealth and future productive capacity fall even as GDP might look healthy. GDP also fails to subtract costs of environmental damage (pollution, soil degradation, climate impacts), so it can overstate long-term welfare and sustainability.
(For a fuller picture of national wealth policymakers sometimes use measures like adjusted net saving, “Green GDP,” or comprehensive wealth accounts that include produced, human, and natural capital.)
One reason GDP is an incomplete measure of national wealth is that it records production flows but ignores changes in the country’s asset stocks — especially natural capital. For example, extracting oil or logging forests raises GDP today because those activities are economic output, but they deplete the underlying resource base. If the country does not invest enough to replace or compensate for that loss (through investments in infrastructure, human capital, or technological improvements), its true wealth and future productive capacity fall even as GDP might look healthy. GDP also fails to subtract costs of environmental damage (pollution, soil degradation, climate impacts), so it can overstate long-term welfare and sustainability.
(For a fuller picture of national wealth policymakers sometimes use measures like adjusted net saving, “Green GDP,” or comprehensive wealth accounts that include produced, human, and natural capital.)
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