Gross domestic product (GDP)is not a perfect measure of welfare because it:
A)treats a dollar spent on guns the same as a dollar spent on education.
B)treats a dollar spent on exports the same as a dollar spent on imports.
C)double counts the value of leisure time.
D)double counts depreciation.
E)counts illegal activities in the underground economy.

Question

Quizplus · Accepted Answer

GDP does not take into account the composition of spending or the nature of economic activity. It treats a dollar spent on goods and services that improve the welfare of citizens, such as education, the same as a dollar spent on goods and services that do not improve welfare, like military spending. This means that GDP overestimates the economic welfare of society. Therefore, choice A is the best answer. Choice B refers to the issue of net exports, not to the welfare of society. Choice C is not applicable as leisure time is not included in GDP. Choice D refers to the issue of the depreciation of capital stock, not to the welfare of society. Choice E is correct, but it is less significant than choice A as the underground economy is relatively small compared to the overall GDP.

Gross Domestic Product (GDP)is Not a Perfect Measure of Welfare