Because GDP does not fully account for improvements in the quality of goods, the GDP calculation
A) tends to overstate the true value of output in the United States.
B) tends to understate the true value of output in the United States.
C) provides an accurate value of output in the United States.
D) measures the value correctly because price changes always capture the value of quality changes.

Question

Quizplus · Accepted Answer

GDP does not fully account for improvements in the quality of goods, which means that even though the price of a good may remain constant, its actual value has increased due to improved quality. Therefore, GDP tends to understate the true value of output in the United States.

Because GDP Does Not Fully Account for Improvements in the Quality