ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Real GDP overstates economic growth since it doesn’t account for changes in price level
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CPI doesn’t included the newest, up-to-date, consumer goods
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CPI overstates inflation since consumers will buy lower priced substitute goods
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The official unemployment rate numbers don’t include people that stopped looking for work
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Real GDP is a poor measure of standard of living because it doesn’t show how income is distributed
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Detailed explanation-1: -Cons. GDP does not capture welfare or human well-being. GDP may not be a strong basis to predict economic growth in times of high uncertainty. As international accounting standards are slow to change and require international consensus, GDP is slow to reflect changes in the world.
Detailed explanation-2: -However, it has some important limitations, including: The exclusion of non-market transactions. The failure to account for or represent the degree of income inequality in society. The failure to indicate whether the nation’s rate of growth is sustainable or not.
Detailed explanation-3: -Some criticisms of GDP as a measure of economic output are: It does not account for the underground economy: GDP relies on official data, so it does not take into account the extent of the underground economy, which can be significant in some nations.
Detailed explanation-4: -(i) Non monetary exchanges. GDP measures the goods and services produced in an economy during a particular period of time. (ii) Inflation. GDP does not take into account the level of prices in a country. (iii) Externalities. (iv) Income pattern.