Which of the following is FALSE with respect to the use of GDP to compare countries?

• A. GDP accurately measures the standard of living across countries without any adjustments.
• B. GDP does not account for differences in population size between countries.
• C. GDP can be affected by differences in exchange rates when comparing countries.
• D. GDP comparisons may not reflect differences in non-market activities or informal economies.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what GDP (Gross Domestic Product) measures — it is the total market value of all final goods and services produced within a country in a given period.
2. Step 2: Recognize that GDP alone does not adjust for population size, so comparing total GDP between countries can be misleading without considering GDP per capita, which divides GDP by the population.
3. Step 3: Note that GDP comparisons across countries can be distorted by exchange rate fluctuations, as GDP is often converted into a common currency for comparison, which may not reflect true purchasing power.
4. Step 4: Remember that GDP does not capture non-market activities (like household labor) or informal economies, which can be significant in some countries and affect the real economic well-being of their populations.
5. Step 5: Conclude that the statement 'GDP accurately measures the standard of living across countries without any adjustments' is false because GDP requires adjustments (like per capita calculations and purchasing power parity) and does not account for all factors affecting living standards.