GDP GDP Per Capita and Living Standards 2 — Questions and Answers
Question 1: Which of the following is a major limitation of using GDP per capita as a measure of living standards?
- It does not reflect the distribution of income across the population (Correct answer)
- It includes transfer payments
- It overstates government spending
- It measures only agricultural output
Correct answer: It does not reflect the distribution of income across the population
GDP per capita is an average that can mask extreme inequality — a few very wealthy individuals can raise the average while most people remain poor.
Question 2: Country A has GDP per capita of $60,000 and Country B has GDP per capita of $10,000. What can we conclude?
- Country A residents have higher average income than Country B residents (Correct answer)
- Country A has a larger total GDP than Country B
- Country A has a higher standard of living for all its citizens
- Country A has lower unemployment than Country B
Correct answer: Country A residents have higher average income than Country B residents
GDP per capita only shows the average income per person, not the total size of the economy or the distribution of income.
Question 3: Which of the following countries consistently ranks among the highest in the world for GDP per capita?
- Luxembourg (Correct answer)
- India
- Brazil
- Nigeria
Correct answer: Luxembourg
Luxembourg regularly ranks among the world's highest GDP per capita countries due to its small population and large financial services sector.
Question 4: Real GDP per capita adjusts nominal GDP per capita by:
- Removing the effects of inflation (Correct answer)
- Subtracting net exports
- Adding transfer payments
- Including informal economic activity
Correct answer: Removing the effects of inflation
Real GDP per capita uses a price deflator to remove inflation effects, allowing meaningful comparisons of living standards over time.
Question 5: If a country's GDP grows by 5% but its population also grows by 5%, what happens to GDP per capita?
- It remains unchanged (Correct answer)
- It increases by 10%
- It decreases by 5%
- It doubles
Correct answer: It remains unchanged
When both GDP and population grow at the same rate, GDP per capita stays the same because the gains are spread across an equally larger group.
Question 6: Which of the following would cause GDP per capita to rise even if total GDP stays constant?
- A decline in population (Correct answer)
- An increase in government spending
- A rise in exports
- An increase in consumer prices
Correct answer: A decline in population
If total GDP stays the same but the population shrinks, the same output is divided among fewer people, raising per capita GDP.
GDP GDP Per Capita and Living Standards 2
Which of the following is a major limitation of using GDP per capita as a measure of living standards?