Chapter 11, Problem 4MCQ

To determine

The question requires us to determine the factor which makes real GDP per capita an imperfect measurement of the quality of life.

Explanation of Solution

Real GDP per capita is the measurement for comparing the average income per individual in a country over time because it gives the inflation-adjusted value of the income, but it doesn’t say anything about the quality of life. Real GDP per capita doesn’t include the level of education, health, and availability of drinking water and sanitation facilities in its estimation. It represents the value of income in monetary terms per head in an economy. It even doesn’t say anything about income distribution among the population. Few people live far above the per capita income level while many people live far below the per capita level of income.

Real GDP per capita is not a perfect measurement of the quality of life because it excludes spending on education.

So, option “b” is correct.

The other options are incorrect because:

• Real GDP per capita doesn’t count leisure time, the value of housework, spending on education, health, or natural disasters.
• Spending on entertainment gives returns in form of income so, it counts in the measurement of real GDP and thus in the real GDP per capita.