GDP GDP Per Capita and Living Standards 2

Question 1

Which of the following is a major limitation of using GDP per capita as a measure of living standards?

Accepted Answer

It does not reflect the distribution of income across the population

Answer

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?

Accepted Answer

Country A residents have higher average income than Country B residents

Answer

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?

Accepted Answer

Luxembourg

Answer

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:

Accepted Answer

Removing the effects of inflation

Answer

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?

Accepted Answer

It remains unchanged

Answer

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.

GDP - Gross Domestic Product Practice Test