Bruce D. Meyer and James X. Sullivan
GDP is first and foremost a measure of economic activity and production, and distinct from a measure of welfare, even when narrowly defined as material well-being. Despite this difference, GDP and welfare are not unrelated concepts. Links include the scope of final products that enter GDP and the welfare basis of price indices that are used to compute real GDP. Further, the national accounts systematically link GDP with household consumption and income, the key determinants of average material well-being. Last, in measures of intertemporal social welfare, GDP appears through the need to account for future changes in productivity. This chapter also describes efforts to adjust GDP to gauge welfare more directly but concludes that they have not gained traction because there is no well-articulated theory that would indicate the scope and nature of the required adjustments and because GDP is tremendously useful as a measure of production that needs complementing but not substituting.