Well-being Index Activity - Principles of Macroeconomics

3. Create Index

Activity Instructions

Objective

In this activity, you and/or your group (of 2 to 3) will create your own well-being index to measure economic prosperity beyond traditional Gross Domestic Product (GDP) measures.

While GDP is the most common measure of economic well-being, it fails to capture many important aspects of human welfare. This activity will help you understand the limitations of GDP and explore alternative measures.

Activity Overview

First, work with 0-2 peers to form a group
Explore GDP per Capita and the Human Development Index (HDI)
Create your own well-being index by selecting variables and weights
Compare your index with those created by your classmates and an AI
Reflect on the implications for economic policy and measurement

Background

The limitations of GDP as a measure of well-being include:

Ignores income distribution (inequality)
Excludes non-market activities (e.g., household work)
Doesn't account for environmental degradation
Fails to measure social welfare, health, and happiness
Counts all production equally, even harmful activities

Alternative measures like the Human Development Index (HDI) incorporate education and health alongside economic factors, but still have limitations. Your task is to design a more comprehensive measure.

Key Questions to Consider

What dimensions of human well-being should be included beyond income?
How should different factors be weighted relative to each other?
Which countries might rank differently on your measure compared to GDP?
What policy implications might arise from using your measure?

Explore Well-being Measures

Examine how countries rank differently on GDP per Capita versus the Human Development Index (HDI). Notice which countries have significant discrepancies between the two measures.

Drag to resize

Understanding the Human Development Index (HDI)

The HDI combines three key dimensions of human development:

Health

Measured by life expectancy at birth

Education

Measured by mean years of schooling and expected years of schooling

Standard of Living

Measured by GNI per capita (PPP $)

The final HDI is calculated as the geometric mean of normalized indices for each of these dimensions.

Country	GDP per Capita	GDP Rank	HDI Value	HDI Rank

Next: Create Your Index

Create Your Well-Being Index

How to Create Your Index:

Review the variable categories below
Select up to 7 variables that you think best capture human well-being
Assign weights to each variable (weights must sum to 100%)
Name your index and provide a brief justification

Variable Categories

GDP per Capita

Total economic output per person

Income Inequality (GINI)

Measure of income distribution inequality

Poverty Rate

Percentage below poverty line

Unemployment Rate

Percentage without employment

Life Expectancy

Average years of life at birth

Infant Mortality Rate

Deaths per 1,000 live births

Healthcare Access

Access to essential health services

Mental Health

Prevalence of mental well-being

Literacy Rate

Percentage who can read and write

Years of Education

Average years of schooling

Education Quality

Quality of education system

CO2 Emissions

Carbon emissions per capita

Renewable Energy

Percentage of energy from renewables

Air Quality Index

Measure of air pollution levels

Biodiversity Protection

Conservation efforts and outcomes

Democratic Participation

Voting rights and election quality

Corruption Index

Perception of public sector corruption

Press Freedom

Independence of media

Human Rights

Basic rights protections

Your Selected Variables

Select variables from the left panel to build your index

(Click on a variable to add it)

Total Weight:

Name and Justify Your Index

Index Name

Give your index a descriptive name that reflects its focus

Justification (Why these variables? What aspect of well-being does your index measure?)

Max 250 characters. 250 remaining.

Index Preview

Country	Index Value	Rank