Question

Real GDP per capita is often used as a measure of general​ well-being. While increases in real GDP often do lead to increases in the​ well-being of the​ population, why is real GDP not a perfect measure of​ well-being?
A. The costs of pollution are not included.
B. GDP does not include crime rates or income distribution.
C. The value of leisure is not included.
D. All of the above.

Answer 1

Answer:

The correct answers are: GDP does not include crime rates or income distribution.; The value of leisure is not included.; The costs of pollution are not included.

Explanation:

GDP is very useful for measuring the production of an economy, but by itself and in isolation it is not adequate to measure the welfare of the population or its development.

1. If we compare two countries and one has a higher GDP than another, it might seem that it has a greater well-being. However, this is not at all like that because we are not considering the population of each country. As a solution, we use GDP per capita and we can say that, in general, countries with a high level of GDP per capita have a higher level of economic development. However, the problem here is that statistics can lead to erroneous conclusions, since this indicator also does not tell us how income is distributed among the citizens of a country.
2. There are very important activities in our society that, being unpaid, are not taken into account by GDP. The most typical example is the work that people do at home. Domestic work is not included in the calculation of GDP because it has no valuation in the market. However, if someone pays for it by hiring a home attendant, it is reflected. With voluntary work or with barter activities, it is exactly the same: GDP ignores them.
3. The submerged economy totally escapes GDP accounting. Many activities are not declared to the public sector in order to avoid paying taxes and, therefore, their existence is not recorded. If this economy in B should come to light and be considered by GDP, it would increase by several percentage points.
4. The GDP does not measure the level of development of a country, nor does it measure the quality or level of its educational system or its health. Come on, that the quality of life in general is not measurable by GDP, although it is true that countries with a higher GDP per capita can afford better health or education services, as well as better infrastructure and services in general.
5. It does not measure the state of the environment or the damage caused to it or natural resources by the economic activity carried out. In other words, GDP does not report externalities, that is, it does not reflect the total social benefits and costs derived from economic activity.
6. GDP does not measure the quality of the goods and services produced. The GDP figures are only numbers that do not take into account exactly what is being produced or what is the quality of what is produced. This prevents, for example, comparing production between different eras. Does a computer add up to GDP now than in the 80s? The answer is no. Does a country of services add up to an oil exporter? The answer is also no.
7. It ignores the value of elements that contribute to maintaining the level of well-being of the population, such as leisure or freedom. In freer countries or in which its inhabitants have more leisure time and better options in which to invest it, well-being is much greater.