Discussion on GDP in Finance from GDP: An
Affectionate History, Chapter 5// The Great
September 4, 2014
1. How did the treatment of the financial sector in GDP affect the measure
of economic growth and the value to economic integration before the
(a) Why did the financial sector produce arrogance that ”lead to follies”?
(b) What affect did this have on policy?
(c) What affect did this have on economic development?
(d) Why might GDP growth not be a good measure for the success of
the ”Chinese” model?
(e) Why does the author find the behavior of the financial sector in
England in 2008 as documented by GDP non-credible?
2. What do statisticians attempt to measure when it comes to GDP in
the financial sector?
(a) How do statisticians typically measure GDP in service sectors
(reading previous chapters may help answer this)? Why are fees
traditionally important? Why do fees not help in the financial
(b) What is meant by FSIM? What does it try to measure? What is
meant by a risk-free rate? How is it calculated?
(c) What does the author mean by the phrase ”taking risk is not a
valuable service to the rest of the economy though managing risks
is? Why does the author believe that risk taking is not the special
activity of banks? What role does leverage play in these issues?
(d) What are the quantitative effects of adjusting financial sector returns for risk?
(e) What are the policy implications of adjusting financial sector returns for risk?
3. How has the measure of financial sector output evolved over time?
(a) How was financial sector output measured in the 1950’s? What
was subtracted from their returns?
(b) How did the 1968 SNA treat financial sector output? What is
meant by the phrase IBSC? How was it used in measurement and
how would this have affected aggregate GDP?
(c) What does the author mean when it quotes Brett Christopher as
writing ”Instead of assessing banks’ borrowing and lending activities together and intimating that the combination consituted
a portfolio of services whose collective value could be imputed
by deducing interest paid on the former to the latter, SNA 1993
seperates the two functions and defines each-independently-as a
productive activity whose output can be measured? Why does
GDP separate such activities?
4. What is the significance of the production barrier?
(a) What are some goods and services that National Accounts treats
differently? How has this evolved over time?
(b) How has GDP traditionally treated the informal sector of the economy? How would one measure output in this sector for alternative
treatments? What would be the best guess at the effects of adding
the informal sector to GDP?
(c) How does GDP account for household production? How can it
be measured outside GDP? What conclusions can be drawn from
(d) How does GDP account for pollution? How have outside researchers sought to broaden the measure of GDP in this regard?
What conclusions did they reach?
(e) What is NNP? What issues does this measure deal with? How is
it measured? Why does the author believe that this measure is
closer to welfare than GDP?