Which of the following best explains the difference between GDP (Gross Domestic Product) and GPI (Genuine Progress Indicator)?

• A. GDP focuses on income distribution, while GPI ignores income inequality.
• B. GPI is a measure of a country's total exports, while GDP measures total imports.
• C. GDP measures the total market value of all final goods and services produced within a country, while GPI adjusts GDP by accounting for environmental and social factors.
• D. GDP includes non-market transactions, whereas GPI only measures market-based activities.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of GDP. GDP (Gross Domestic Product) measures the total market value of all final goods and services produced within a country's borders during a specific time period. It focuses on economic output and production without adjusting for social or environmental factors.
2. Step 2: Understand the definition of GPI. GPI (Genuine Progress Indicator) starts with GDP as a base but adjusts it by including factors such as income distribution, environmental costs, and social well-being. It aims to provide a more comprehensive measure of economic progress by accounting for positive and negative externalities.
3. Step 3: Compare the focus of GDP and GPI. GDP primarily measures economic activity and output, while GPI attempts to measure the true progress of a society by incorporating environmental degradation, social costs, and benefits that GDP ignores.
4. Step 4: Evaluate the incorrect options. For example, GDP does not focus on income distribution specifically, nor does it measure only imports or exports. Also, GDP excludes non-market transactions, so the statement about GDP including non-market transactions is incorrect.
5. Step 5: Conclude that the best explanation is that GDP measures total market value of production, while GPI adjusts GDP by accounting for environmental and social factors, making GPI a more holistic indicator of economic welfare.