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GDP is not a perfect measure of individual well-being in a society because it excludes some goods such as leisure, life expectancy, and environmental quality.
GDP is not a perfect measure of individual well-being in a society because it excludes some goods such as leisure, life expectancy, and environmental quality.
True (A)
GDP provides a good indication of the size of the economy because:
GDP provides a good indication of the size of the economy because:
- it is a monetary measure of total production. (correct)
- it measures all new goods and all used goods.
- is an estimate of individual income.
- it gives increased weight to consumer goods.
A better measure of individual well-being than GDP would be:
A better measure of individual well-being than GDP would be:
- the level of exports per capita.
- per capita GDP. (correct)
- government spending per person.
- per capita consumption goods.
If the GDP of Japan is $10 trillion and the GDP of Mexico is $1 trillion, we can conclude that the average citizen of Japan is 10 times better off than the average citizen of Mexico.
If the GDP of Japan is $10 trillion and the GDP of Mexico is $1 trillion, we can conclude that the average citizen of Japan is 10 times better off than the average citizen of Mexico.
High per capita GDP is associated with:
High per capita GDP is associated with:
The sale of stocks and bonds is included in GDP as investment.
The sale of stocks and bonds is included in GDP as investment.
GDP accounting includes:
GDP accounting includes:
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Study Notes
Limitations of GDP
- GDP fails to measure individual well-being effectively by excluding intangible factors like leisure, life expectancy, and environmental quality.
- High GDP does not necessarily reflect equitable income distribution or per capita income.
GDP as an Economic Indicator
- GDP indicates the size and growth of an economy over time, measured by total output in a specific period.
- It does not account for the production of goods in previous periods, focusing solely on current output.
Per Capita GDP
- Per capita GDP offers a more accurate representation of individual well-being compared to total GDP, as it divides GDP by the population size.
- It serves as a rough estimate of economic productivity per person.
Misinterpretation of GDP Figures
- Comparing national GDP figures, such as Japan’s $10 trillion to Mexico’s $1 trillion, does not accurately reflect the average citizen’s standard of living or income distribution.
- GDP per capita and income inequality must be considered for a clearer picture of economic well-being.
Relationship Between GDP and Quality of Life
- Studies show a strong correlation between high per capita GDP and positive quality of life indicators, including longer life expectancy and higher literacy rates.
- Higher incomes from elevated GDP levels facilitate access to health, education, and essential goods.
Inclusion of Financial Markets in GDP
- Transactions involving stocks and bonds are not included in GDP measurements as they do not represent current production.
- GDP focuses on tangible investments like new plants and equipment rather than financial asset trading.
GDP Accounting Criteria
- GDP only accounts for market-traded goods and services, excluding informal or household production.
- Anti-pollution equipment sales contribute to GDP since they involve market transactions.
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