Gross Domestic Product (GDP) measures the market value of the final goods and services produced within a country during a given period of time. In other words, GDP measures continuous flow of money from households to firms and then back to households in the macroeconomy.

The trend of the GDP growth rates is the key indicator of macroeconomic fluctuations (business cycles), which include expansion, boom, contraction, and recession. Thus the real GDP is used to explain how well the overall economy of a country is performing whereas GDP per capita is used as a natural measure of the economic well-being of the average individual in a given country. GDP has limitations, however, and is not a perfect measure of the economy and economic health.

• In spite of the limitations (shortcomings), why is the GDP used as a measure of national income as well as a measure of national economic well-being?
• Is the GDP measure underestimating or overestimating national production and total income in the economy during various business cycles? Why?
• What are the limitations of the GDP in measuring total output and national welfare? What products (services) are excluded from the GDP computation?
• What are the impacts of the shortcomings of the GDP as a measure of the national product and national economic welfare (well-being)?