GDP will tend to overstate the productive capacity of a country when
A) economic bads like pollution are produced and then must be cleaned up.
B) there is a sizable underground economy.
C) nonmarket production represents a large portion of the economy.
D) working conditions improve, allowing jobs to be completed safer and faster.

Question

Quizplus · Accepted Answer

GDP overstates productive capacity when it includes expenditures on cleaning up pollution, as these do not reflect an increase in actual productive output but rather a cost of maintaining current living standards.

GDP Will Tend to Overstate the Productive Capacity of a Country