GDP is a less-than-perfect measure of the nation’s economic activities because it A. does not include non-market transactions. B. measures the quality of goods and services. C. does not report illegal transactions. D. only A and C. E. only B and C.
The correct answer and explanation is:
The correct answer is D. only A and C.
Gross Domestic Product (GDP) is a common metric used to measure the total value of goods and services produced within a country in a given period. However, it is a less-than-perfect measure of economic activities for several reasons, primarily because it has limitations in what it includes and how it accounts for certain types of economic activity.
- Non-market transactions: GDP does not account for non-market activities, such as household labor or volunteer work. These activities can contribute significantly to well-being and the overall economy but are not captured in GDP because they don’t involve market transactions. For example, a stay-at-home parent taking care of children or a volunteer working at a charity organization contributes to society, but their work does not appear in GDP.
- Illegal transactions: Another limitation is that GDP does not account for illegal transactions, such as the black market. This can lead to an underestimation of economic activity in a country, especially in regions where illegal activities like drug trade or unreported work are prevalent.
On the other hand, GDP does not directly measure the quality of goods and services produced, but instead focuses on the total monetary value of output. Thus, option B is not correct. A country could be producing goods of lower quality, and that would not be reflected in GDP growth.
In summary, the main criticisms of GDP as a measure of economic activity are that it ignores non-market and illegal transactions, leading to potential underreporting of a nation’s economic well-being. However, it does not inherently measure the quality of goods and services produced. Therefore, the best answer is D because it addresses both A and C.