Which of the following is a measure of economic growth that is most useful for measuring changes in the overall size of an economy?

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BlackTom AI · Accepted Answer

When evaluating which metric best captures the overall size of an economy, we must distinguish between total scale and other aspects of economic health.
Option 1: 'decreases in the rate of unemployment' reflects the labor market and may influence economic well-being, but it does not directly measure the overall size or total output of the economy.
Option 2: 'increases in real GDP' tracks the total value of goods and services produced, with adjustments for price changes (inflation), which makes it a proper measure of the economy’s size over time.
Option 3: 'increases in real GDP per capita' shows output per person after inflation, capturing average living standards more than the aggregate size; it can rise even if total output grows slowly or fluctuates, so it’s not the best gauge of overall economy size.
Option 4: 'growth in nominal GDP' measures output using current prices, not adjusting for inflation; while it may show expansion, it can be distorted by price level changes and does not accurately reflect changes in actual physical quantity of goods and services, hence not the most reliable measure of the economy’s real size.
In summary, to assess how big the economy is in aggregate terms, we prefer a measure that accounts for price changes while tracking total production, which is provided by increases in real GDP.

Which of the following is a measure of economic growth that is most useful for measuring changes in the overall size of an economy?

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