GDP - Gross Domestic Product Limitations of GDP Questions and Answers

Question 1

A massive offshore oil spill occurs, leading to a multi-billion dollar cleanup effort.
From a purely GDP accounting perspective, how is this event likely to be reflected, and what major limitation of GDP does this illustrate?

Accepted Answer

GDP will likely increase because the cleanup expenditure is counted as economic activity.

Answer

GDP will decrease because of the environmental damage and loss of natural resources.

Answer

GDP will remain unchanged as the negative environmental impact and positive cleanup spending cancel each other out.

Answer

Only the loss in tourism revenue will be subtracted from GDP, with no other effects.

Question 2

Which of the following is a significant reason why GDP is considered an imperfect measure of a nation's overall well-being?

Accepted Answer

It fails to account for the distribution of income among the population.

Answer

It places too much emphasis on net exports, which can distort the economic picture.

Answer

It includes government spending, which is not a productive part of the economy.

Answer

It double-counts the value of intermediate goods used in production.

Question 3

A skilled software developer volunteers 20 hours per week contributing to a major open-source operating system. This work is unpaid and creates immense value for users worldwide. Why is this contribution NOT included in GDP?

Accepted Answer

Because it is a non-market transaction with no monetary exchange.

Answer

Because the software is not considered a final good.

Answer

Because it is a service, and GDP primarily measures goods.

Answer

Because the developer's primary job is already counted in GDP.

Question 4

The rise of undocumented cash-in-hand jobs and other unrecorded business activities poses a challenge to accurately measuring GDP because these activities are part of the:

Accepted Answer

Underground economy

Answer

Service sector

Answer

Non-profit sector

Answer

Public sector

Question 5

Country Y has experienced a significant increase in its average workweek from 40 to 50 hours over the past decade, which has boosted its total GDP. This scenario highlights which specific limitation of using GDP to measure the standard of living?

Accepted Answer

The lack of accounting for the value of leisure.

Answer

Failure to account for changes in product quality.

Answer

Inability to measure the value of government services.

Answer

Exclusion of the underground economy.

Question 6

All of the following are recognized limitations of Gross Domestic Product (GDP) as a measure of societal well-being EXCEPT:

Accepted Answer

Its failure to measure the monetary value of all market transactions.

Answer

Its failure to account for environmental degradation.

Answer

Its exclusion of the value of household production.

Answer

Its inability to reflect the level of income inequality.