GDP Limitations of GDP 5

Question 1

Why is GDP considered a lagging or incomplete indicator of economic resilience?

Accepted Answer

GDP is published with a significant delay and does not measure an economy's ability to withstand future shocks

Answer

GDP does not measure factors like savings rates, infrastructure quality, or institutional strength that determine how well an economy can recover from crises.

Question 2

How does GDP handle volunteer work and nonprofit contributions to society?

Accepted Answer

Unpaid volunteer work is excluded from GDP because no market transaction occurs

Answer

Because GDP measures market transactions, the substantial value created by volunteers — tutoring, disaster relief, community building — goes uncounted.

Question 3

What does the Genuine Progress Indicator (GPI) attempt to correct compared to GDP?

Accepted Answer

GPI adjusts GDP by adding the value of voluntary work and subtracting costs like crime, pollution, and inequality

Answer

GPI starts with GDP but adds positive activities like volunteerism and subtracts negative ones like pollution and crime to better reflect actual societal progress.

Question 4

A country experiences rapid GDP growth driven entirely by oil exports. Why might this still indicate fragile economic development?

Accepted Answer

GDP growth concentrated in a single sector masks lack of diversification and vulnerability to commodity price swings

Answer

Single-sector growth looks strong in GDP figures but leaves an economy exposed to price volatility and offers little broad-based development.

Question 5

Why do some economists argue that GDP growth can actually worsen quality of life in congested urban areas?

Accepted Answer

Growth can increase traffic, pollution, housing costs, and commute times — costs that GDP does not deduct

Answer

Negative externalities of urban growth like congestion and pollution reduce well-being but are invisible to GDP, which only counts the positive output side.

GDP - Gross Domestic Product Practice Test

GDP - Gross Domestic Product Practice Test

GDP Limitations of GDP 5