Which of the following is a well-known shortcoming of GDP as a measure of economic well-being?

• A. It includes only goods and services produced outside a country's borders.
• B. It excludes most nonmarket production, such as unpaid household work and volunteer services.
• C. It measures income inequality directly by reporting the distribution of income across households.
• D. It counts only intermediate goods and excludes final goods to avoid double counting.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand what GDP measures. Gross Domestic Product (GDP) calculates the total market value of all final goods and services produced within a country's borders during a specific period.
2. Step 2: Recognize the limitations of GDP. GDP does not account for nonmarket activities, such as unpaid household work or volunteer services, because these do not have market prices and are not exchanged in markets.
3. Step 3: Analyze the options given. The statement that GDP includes only goods and services produced outside a country's borders is incorrect because GDP measures production within the borders, not outside.
4. Step 4: Note that GDP does not measure income inequality directly. It provides aggregate economic output but does not show how income is distributed among households.
5. Step 5: Understand that GDP counts only final goods and services to avoid double counting, so the statement about counting only intermediate goods is incorrect.