GDP Limitations and Alternative Indexes

Questions and Answers

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

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:

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.

False Signup and view all the answers

High per capita GDP is associated with:

longer life expectancy and higher rates of literacy. Signup and view all the answers

The sale of stocks and bonds is included in GDP as investment.

False Signup and view all the answers

GDP accounting includes:

the value of anti-pollution equipment sold in a year. Signup and view all the answers

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.

Description

This quiz explores the limitations of GDP as a measure of economic well-being and considers alternative indexes. Questions focus on intangible quality of life factors that GDP fails to account for, such as leisure and environmental quality.