Short Comings of GDP 1. Nonmarket Activities- certain productive activities do not take place in any market. Ex.

Labor of carpenters who repair their own home & domestic work of housewives. 2. Liesure the increase in leisure time clearly had a positive effect on overall well-being. But our system of national income accounting understates well-being by ignoring leisures value. 3. Improved quality product a P 2,000 cell phone purchased today and a cell phone that cost the same amount just a decade ago. Todays cell phone is digital and has greater memory capacity, a viewing screen, and quite likely a camera and MP3 player. 4. The underground economy there people who conduct business as gamblers, smugglers, prostitutes, fences of stolen goods, drug growers, and drug dealers. They have good reasons to conceal their business. 5. The environment - polluted water, toxic wastes, congestion, and noise. The social costs of negative by-products reduce our economic well-being. 6. Composition and distribution of output GDP does not tell us whether the currently produced mix of goods and services is enriching or potential detrimental to society. 7. Non-economic Sources of Well-Being many things can make a society better off without necessarily raising GDP: a reduction of crime and violence, peaceful relations with other countries, peoples greater civility toward one another, better understanding between parents and children, and reduction of drug and alcohol abuse. Laissez faire THE BUSINESS CYCLE Business cycles are alternating rises and declines in the level of economic activity, sometime over several years. Phases of Business Cycle 1. Peak business activity has reached a temporary maximum. 2. Recession is a period of decline in total output, income and employment, lasting six months or more, marked by widespread contraction of business activity in many sectors of the economy. 3. Trough of the recession or depression output and employment bottom out at their lowest levels. The trough phase may either be short-lived or quite long. 4. Recovery and expansion a period in which real GDP, income and employment rise.