Answer the following questions:

a. What does GDP measure, and why is it a useful tool for economists, business decision makers, and government policy makers?
b. Explain at least two important things GDP does not measure.

a. GDP measures the productive output of a country's economy. It is a measure of the market value of all domestically produced final goods and services during a specific period. It gives economists and other interested parties a way to gauge the health of the economy and to forecast the economy.
b. Although GDP is generally a good measure of the productive capacity of an economy, it cannot measure the quality of goods and the introduction of new goods through time. It also is incapable of measuring the underground economy (both legal and illegal transactions) or the extent of nonmarket production in a country. In addition, it excludes leisure and the human cost associated with the production of goods and services. Lastly, it does not make an adjustment for the harmful side effects that arise from production and consumption and the events of nature.