AP®︎ Macroeconomics: Topic 2.2 Flashcards

Master key terms and definitions for Topic 2.2 of AP Macroeconomics – Limitations of GDP to help you prep for quizzes and the AP exam.

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Term

Limitations of GDP

Definition

Ways gross domestic product fails to fully measure economic well-being or standard of living.

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Limitations of GDP
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Ways gross domestic product fails to fully measure economic well-being or standard of living.

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PIES Limitations of GDP
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Population, inequality, environment, and shadow economy are four major reasons GDP can mislead.

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GDP Per Capita
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A country's total output divided by population, used to compare average living standards.

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Human Development Index
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A broader well-being measure combining income with health and education indicators.

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Income Inequality and GDP
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Uneven income distribution can make average output per person hide major differences in living standards.

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Environmental Costs and GDP
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Pollution and resource damage from production may raise output while reducing overall well-being.

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Nonmarket Transactions
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Production not bought or sold in markets, such as household work, so it is excluded from GDP.

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Shadow Economy
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Unreported economic activity, legal or illegal, that is omitted from official output statistics.

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Black Market
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Illegal buying and selling of goods and services that is excluded from official GDP data.

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