Real GDP Per Capita Is an Imperfect Measure of Economic

question 108

Essay

Real GDP per capita is an imperfect measure of economic well-being because it does not value home production or production in the underground economy, among other factors. Give at least two examples that show why the omission of these types of items will make a difference in evaluating economic well-being. One example should explain how the omissions distort comparisons of economic well-being across countries and the other example should explain how the omission distorts comparisons of economic well-being in the same country over time.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated by dividing current assets by current liabilities.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating short-term financial health.

Short-term Bank Loan

A loan borrowed from a bank with a repayment period typically less than one year, often used for immediate liquidity needs.

Fixed Assets

Long-term tangible assets that are used in the operations of a business, such as machinery, buildings, and equipment, and are not expected to be converted into cash in the current or upcoming fiscal year.