In recent years, technological improvements and the Internet have substantially reduced transaction costs and expanded the availability of low-cost access to information, communications, and entertainment. Most economists believe that these changes
A) cause GDP to overstate the growth rate of real output and the improvement in the well-being of people.
B) cause GDP to understate the growth rate of real output and the improvement in the well-being of people.
C) cause the consumer price index to increase more rapidly than the general level of prices.
D) reduce the gains from trade and thereby cause GDP to decline.

Question

Quizplus · Accepted Answer

The reduction in transaction costs and expansion of access to information, communications, and entertainment have led to increased productivity and innovation, which leads to higher real output and improved well-being. However, GDP does not fully capture these benefits because it is based on monetary transactions, and many of the benefits of the digital economy are non-monetary, such as access to free information or social media. As a result, GDP tends to understate the growth rate of real output and the improvement in well-being that have occurred due to the digital economy.

In Recent Years, Technological Improvements and the Internet Have Substantially