Question

What is the most appropriate measure of the economic growth of a country?

• A. Gross domestic product
• B. Net domestic product
• C. Gross National product
• D. Per capita real income

Hint:

GDP is the most commonly used indicator for measuring economic growth. However, it is important to consider other factors like income distribution and sustainability for a holistic understanding of a country's economic well-being.

Answer 1

The Correct Option is A

Step 1: Understanding Economic Growth Measurement:
Economic growth refers to the increase in the output of goods and services in an economy over time. This growth is typically measured by the expansion of a country’s gross domestic product (GDP). GDP measures the total value of all goods and services produced within the country’s borders during a specific period. It reflects the economic health of a country and indicates how much economic activity is taking place.
Step 2: Delving into GDP and Its Relevance:
GDP is the most widely recognized indicator of economic growth. It takes into account the value of all goods and services produced within a country, which includes consumer spending, business investments, government expenditures, and net exports (exports minus imports). This makes GDP a comprehensive measure that captures the overall economic performance of a nation.
Step 3: Evaluating Other Options:
- Net Domestic Product (NDP): NDP is a measure of GDP after accounting for depreciation (i.e., the loss of value of capital goods due to wear and tear). While NDP provides valuable information on sustainable economic activity, it is not commonly used to measure the overall growth of an economy, as it emphasizes only the net production.
- Gross National Product (GNP): GNP includes all the economic output produced by a country’s residents, whether within the country or abroad. Although it provides insights into the economic contributions of a nation’s citizens, GDP is the preferred indicator for measuring economic growth within a country, as it focuses solely on domestic production.
- Per Capita Real Income: This measures the average income of citizens in a country, adjusted for inflation. While it helps gauge the standard of living, it does not fully reflect the overall economic activity of a country. Economic growth is better captured by GDP, which focuses on production rather than income distribution.
Step 4: Conclusion and Answer:
The most appropriate measure of economic growth is Gross Domestic Product (GDP), as it directly quantifies the total value of goods and services produced within the country and is universally accepted in economics.