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CSEET · Economic and Business Environment · National Income Accounting and Related Concepts

Which of the following is a recognised limitation of using GDP as a measure of a country's economic welfare?

GDP does not capture how income is distributed among people. Two countries with the same GDP can have very different inequality, so GDP alone cannot show the welfare of the population. This is a standard limitation of national income accounting.

  1. AGDP is always calculated in physical units rather than money terms
  2. BGDP does not capture the distribution of income among the peopleCorrect
  3. CGDP includes only imported goods and services
  4. DGDP cannot be compared across different years

Explanation

GDP gives the total or average output but says nothing about how income is shared between rich and poor, so it is an imperfect welfare measure. GDP is measured in money terms, not physical units, and includes domestic production, not just imports. Real GDP does allow comparison across years.

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