The expenditure categories of real GDP in 2017 for two countries (Hamsterville and Gerbilalia) are given below:
\begin{tabular}{lll}
Category & Spending by Hamsterville & Spending by Gerbilalia \
\hline C & $\$ 100$ & $\$ 100$ \
I & $\$ 100$ & $\$ 100$ \
G & $\$ 10$ & $\$ 10$ \
NX & $\$-10$ & $\$-10$ \
TOTAL & $\$ 150$ & $\$ 150$
\end{tabular}

An economics student doing her dissertation on economic development in these two countries has noticed that the rate of capital depreciation in Hamsterville is twice as high as in Gerbilalia.

Which of the following best describes a criticism of using GDP to compare these two countries that we can infer based on this information?

Choose 1 answer:
(A) One country has highly unequal distribution of income
(B) Hamsterville will grow at a slower rate because more of its investment is replacing old capital
(C) One country likely has higher levels of pollution
(D) Both have trade deficits
(E) There is no criticism of GDP as a measure of output here because these two countries have identical GDP
Report a problem

Question

The expenditure categories of real GDP in 2017 for two countries (Hamsterville and Gerbilalia) are given below:
\begin{tabular}{lll} 
Category & Spending by Hamsterville & Spending by Gerbilalia \
\hline C & $\$ 100$ & $\$ 100$ \
I & $\$ 100$ & $\$ 100$ \
G & $\$ 10$ & $\$ 10$ \
NX & $\$-10$ & $\$-10$ \
TOTAL & $\$ 150$ & $\$ 150$
\end{tabular}

An economics student doing her dissertation on economic development in these two countries has noticed that the rate of capital depreciation in Hamsterville is twice as high as in Gerbilalia.

Which of the following best describes a criticism of using GDP to compare these two countries that we can infer based on this information?

Choose 1 answer:
(A) One country has highly unequal distribution of income
(B) Hamsterville will grow at a slower rate because more of its investment is replacing old capital
(C) One country likely has higher levels of pollution
(D) Both have trade deficits
(E) There is no criticism of GDP as a measure of output here because these two countries have identical GDP
Report a problem

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ Consider the information given about the two countries' GDP and the rate of capital depreciation. ‖ ‖ step 2 ⋮ Recognize that GDP measures the total output of a country, but it does not account for the quality of the assets or their depreciation rates. ‖ ‖ step 3 ⋮ Infer that if Hamsterville has a higher rate of capital depreciation, a larger portion of its investment (I) is likely going towards replacing worn-out capital rather than contributing to new productive capacity. ‖ ‖ step 4 ⋮ Evaluate the answer choices in the context of the information provided and the implications of different capital depreciation rates on GDP comparison. ‖ ∻Answer∻ ***B*** ∻Key Concept∻ ⚹GDP does not account for capital depreciation rates.⚹ ∻Explanation∻ ⚹Comparing GDP between countries without considering capital depreciation can be misleading, as it may not reflect the actual productive capacity or economic growth.⚹◊What statistical methods can be used to compare the GDP of two different countries effectively⍭ Generate me a similar question◊

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