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GDP and National Income Paper 3: Challenge
GDP and National Income Paper 3: Challenge
The limits of GDP as a welfare measure: environmental cost, unpaid work, the underground economy, distribution, and stock against flow, with practice on green output and per-head comparison.
Direct answers Answers and explanations for all ten questions
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 |
| Suggested time | 20 |
| Difficulty mix | Foundation 3 · Intermediate 3 · Challenge 3 · Error redo 1 |
| Chapter | Chapter: DSE Economics GDP and National Income |
| Level | Paper 3 (challenge) |
02 Questions (10 items)
- FoundationItem 1: GDP is 5 000 and environmental depletion is valued at 600. Find green GDP.
- FoundationItem 2: GDP rises while unpaid household care also increases. Can GDP capture that contribution, and why?
- FoundationItem 3: two countries share the same GDP but their populations differ twofold. Is comparing living standards by GDP alone sound?
- IntermediateItem 4: GDP is 5 000 and pollution damage from production is valued at 200. Find adjusted green GDP.
- IntermediateItem 5: country A has GDP of 40 000 with two million people; country B has the same GDP with five million. Find both per-head figures.
- IntermediateItem 6: a sector dealing largely in cash fails to report its sales. What happens to GDP?
- ChallengeItem 7: nominal GDP grows 12 per cent, prices rise 5 per cent and population grows 3 per cent. Find real growth per head.
- ChallengeItem 8: local GDP rises because heavy pollution is being cleaned up. Does that prove living quality improved?
- ChallengeItem 9: post-war reconstruction lifts construction and output, raising GDP. Does that show welfare improved?
- Error redoError 10: treating GDP as an absolute measure of welfare and assuming higher output always means a better life. How should this be answered?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | 4400, since green GDP deducts resource depletion and environmental damage. | What is deducted is the environmental cost, not government spending in general. |
| 2 | No. Unpaid housework and care are not market transactions and carry no market price, so they stay outside GDP. | This is one of the main limits of GDP as a welfare measure. |
| 3 | No; compare GDP per head, and consider prices and income distribution as well. | With equal totals and different populations, output per head can differ twofold. |
| 4 | 4800, a reduction of 4 per cent. | The monetary value of pollution has to be estimated, so different methods give different green figures. |
| 5 | A reaches 200.0 ten-thousand dollars and B 80.0, so A is two and a half times B. | With equal totals, the per-head gap comes entirely from population. |
| 6 | GDP is understated because underground production is unrecorded. | The size of the understatement is uncertain, so cross-country comparisons need care. |
| 7 | About 3.56 per cent: combine the three factors before subtracting one. | Taking 12 minus 5 minus 3 gives 4 and overstates the true figure. |
| 8 | Not necessarily. The damage already occurred; clean-up spending counts as output, but welfare must net off the harm first. | This is the classic problem of GDP counting repair costs as output. |
| 9 | Not directly. Rebuilding only restores pre-war stock; the net welfare change must count war losses. | The distinction between stock and flow is the key to this kind of question. |
| 10 | GDP measures the value of market production only; it ignores leisure, unpaid work, environmental cost and distribution, so it is a rough guide at best. | List at least three limits and name alternatives such as output per head, green output and the human development index. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
When challenging an output measure, work from what it counts and what it misses; the answer then writes itself.Tutor Registration →
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