Sunday, October 14, 2007

Mis-measuring GDP....

"The different approaches to measuring GDP (income approach, product approach, etc) are supposed to all give the same answer. But some activities are hard to measure- for example drug dealing- and are likely to be excluded from the product approach for lack of data. Might this explain why the different approaches give different answers?" - Chen

This shouldn't be too much of a problem, as we likely miss-measure both the income approach and the product approach by a similar amount. We don't measure the consumer's purchases of illegal drugs, but we don't measure the income earned by the drug dealer either! Since the amounts are identical, ignoring parts of the economy should not systematically bias one measure of GDP relative to another.

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