Practice Test GeeksGDP - Gross Domestic Product Practice Test
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Limitations of GDP Flashcards

7 cards from real GDP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Limitations of GDP flashcards as text

  1. Why does GDP fail to capture income inequality within a country?

    Answer: It reports a single aggregate figure that masks how income is distributed among individuals

    GDP is an aggregate measure, so a high GDP can coexist with extreme poverty if wealth is concentrated among few people.

  2. Which of the following household activities is EXCLUDED from GDP calculations?

    Answer: A parent cooking meals for their own family

    GDP only counts market transactions, so unpaid household labor like cooking for one's own family is excluded.

  3. How does GDP treat environmental degradation caused by industrial production?

    Answer: It ignores it and counts only the market value of goods produced

    Standard GDP does not deduct environmental damage, so pollution-heavy growth can appear as economic progress.

  4. A country rebuilds infrastructure after a major hurricane. How does this affect GDP?

    Answer: GDP rises because reconstruction spending counts as economic activity

    Reconstruction spending adds to GDP even though it merely restores what was lost, illustrating GDP's inability to distinguish beneficial from defensive spending.

  5. What does the term 'underground economy' refer to in the context of GDP limitations?

    Answer: Legal but unreported cash transactions and illegal economic activity not captured in GDP

    The underground economy includes unreported legal work and illegal activity, both of which are excluded from official GDP figures.

  6. Why might a rise in GDP not reflect a true improvement in living standards?

    Answer: Increases in GDP could stem from longer working hours rather than greater productivity or leisure

    If GDP grows because people work more hours rather than becoming more productive, individuals may actually enjoy less leisure and lower quality of life.

  7. Which metric was developed specifically to address GDP's failure to measure overall well-being?

    Answer: Human Development Index (HDI)

    The HDI incorporates life expectancy, education, and per-capita income to provide a broader measure of human well-being beyond GDP alone.