Gross domestic product (GDP) is the total value of all goods and services produced in the economy during a specified period of time, such as a year or quarter. Improvements in the economic well-being of individuals in any society cannot occur without such an increase in real GDP. Real GDP per capita is real GDP divided by the number of people in the economy. When real GDP per capita is increasing, then the well-being- or the standard of living- of individuals in the economy, at least on average, is improving. At present the measurement of an increasing Gross Domestic Product (GDP) is said to represent well-being. This indicator has been used increasingly since World War II. It has proven effective at stimulating economic activity. This critical functioning of the market has contributed to the belief that the more market activity there is, (Gross Product), the better off we are. The GDP measure says we are on the right track.
However, GDP is not without shortcomings. The essential problem with GDP as it currently stands is that a growing GDP doesn't necessarily correspond to a rise in the population's well-being. GDP estimates the dollar value of all the goods and services the U.S. produces, but more production does not automatically create a higher standard of living.
One example is military hardware. Some would argue that an increase in weaponry is a bad thing. Likewise, the production of cigarettes may provide jobs in agriculture, manufacturing, retail, and ultimately, as a result of product use, in health care. But those who disapprove of the industry would not say that the resulting flow of money to the economy adds to America's well-being. More production can also result in more pollution and depletion of resources, but the GDP does not account for environmental degradation. One person's economic boon may be another's economic woe. .
Now some economists are asking whether the GDP is an adequate measure of the nation's well being.
