GDP is not a perfect measure of well-being; for example, which of the following is a limitation of using GDP to assess a country's welfare?

• A. GDP reflects changes in leisure time and work-life balance.
• B. GDP measures the distribution of income among citizens.
• C. GDP does not account for environmental degradation.
• D. GDP includes the value of unpaid household work.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what GDP measures. GDP (Gross Domestic Product) calculates the total market value of all final goods and services produced within a country in a given period. It focuses on economic output and production.
2. Step 2: Recognize the limitations of GDP as a welfare measure. GDP does not capture non-market activities such as unpaid household work or changes in leisure time, nor does it reflect how income is distributed among citizens.
3. Step 3: Identify that GDP does not account for negative externalities like environmental degradation. This means that activities harming the environment can increase GDP even though they reduce overall well-being.
4. Step 4: Compare the options given: GDP does not reflect leisure time or income distribution accurately, and it excludes unpaid work, but the key limitation related to welfare is its failure to account for environmental harm.
5. Step 5: Conclude that the correct limitation of GDP in assessing welfare is that it does not account for environmental degradation, which can negatively impact the quality of life despite GDP growth.