What are the shortcomings of GDP?

• A. It omits non-market and unpaid work, ignores income distribution and inequality, excludes environmental degradation and resource depletion, and does not measure overall wellbeing or leisure.
• B. It excludes illegal economic activity and barter transactions, but otherwise provides a complete measure of national welfare.
• C. It only measures nominal values and cannot be adjusted for inflation or price changes over time.
• D. It fails to include business investment and government spending, double-counts intermediate goods, and excludes exports.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand that GDP (Gross Domestic Product) measures the total market value of all final goods and services produced within a country in a given period, but it has limitations in capturing the full economic and social welfare.
2. Step 2: Identify that GDP omits non-market and unpaid work, such as household labor and volunteer services, which contribute to wellbeing but are not traded in markets and thus not recorded in GDP.
3. Step 3: Recognize that GDP ignores income distribution and inequality, meaning it does not show how wealth is shared among the population, so a high GDP could coincide with significant inequality.
4. Step 4: Note that GDP excludes environmental degradation and resource depletion, so economic activities that harm the environment may increase GDP in the short term but reduce long-term welfare.
5. Step 5: Understand that GDP does not measure overall wellbeing or leisure time, which are important aspects of quality of life but are not captured by production and market transactions.