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# The Gross Domestic Product (GDP), which measures the dollar

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The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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Updated on: 13 Oct 2017, 06:35
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Verbal Review Practice Passage
Passage No.: 1
Questions: 1 to 6
Page: 22 & 23

The Gross Domestic Product (GDP), which measures the dollar value of finished goods and services produced by an economy during a given period, serves as the chief indicator of the economic well-being of the United States. The GDP assumes that the economic significance of goods and services lies solely in their price, and that these goods and services add to the national well-being, not because of any intrinsic value they may possess, but simply because they were produced and bought. Additionally, only those goods and services involved in monetary transactions are included in the GDP. Thus, the GDP ignores the economic utility of such things as a clean environment and cohesive families and communities. It is therefore not merely coincidental, since national policies in capitalist and non-capitalist countries alike are dependent on indicators such as the GDP, that both the environment and the social structure have been eroded in recent decades. Not only does the GDP mask this erosion, it can actually portray it as an economic gain: an oil spill off a coastal region “adds” to the GDP because it generates commercial activity. In short, the nation’s central measure of economic well-being works like a calculating machine that adds but cannot subtract.

1. The primary purpose of the passage is to:

(A) identify ways in which the GDP could be modified so that it would serve as a more accurate indicator of the economic well-being of the United States

(B) suggest that the GDP, in spite of certain shortcomings, is still the most reliable indicator of the economic well-being of the United States

(C) examine crucial shortcomings of the GDP as an indicator of the economic well-being of the United States

(D) argue that the growth of the United States economy in recent decades has diminished the effectiveness of the GDP as an indicator of the nation’s economic well-being

(E) discuss how the GDP came to be used as the primary indicator of the economic well-being of the United States

Spoiler: :: OA
C

2. Which of the following best describes the function of the second sentence of the passage in the context of the passage as a whole?

(A) It describes an assumption about the GDP that is defended in the course of the passage.

(B) It contributes to a discussion of the origins of the GDP.

(C) It clarifies a common misconception about the use of the GDP.

(D) It identifies a major flaw in the GDP.

(E) It suggests a revision to the method of calculating the GDP.

Spoiler: :: OA
D

3. It can be inferred that the author of the passage would agree with which of the following about the “economic significance” of those goods and services that are included in the GDP?

(A) It is a comprehensive indicator of a nation’s economic well-being.

(B) It is not accurately captured by the price of those goods and services.

(C) It is usually less than the intrinsic value of those goods and services.

(D) It is more difficult to calculate than the economic significance of those goods and services that are not included in the GDP.

(E) It is calculated differently in capitalist countries than in non-capitalist countries.

Spoiler: :: OA
B

4. The comparison of the GDP to a calculating machine serves to do which of the following?

(A) Refute an assertion that the calculations involved in the GDP are relatively complex in nature

(B) Indicate that the GDP is better suited to record certain types of monetary transactions than others

(C) Suggest that it is likely that the GDP will be supplanted by other, more sophisticated economic indicators

(D) Illustrate the point that the GDP has no way of measuring the destructive impact of such things as oil spills on the nation’s economic well-being

(E) Exemplify an assertion that the GDP tends to exaggerate the amount of commercial activity generated by such things as oil spills

Spoiler: :: OA
D

5. The passage implies that national policies that rely heavily on economic indicators such as the GDP tend to-

(A) become increasingly capitalistic in nature

(B) disregard the economic importance of environmental and social factors that do not involve monetary transactions

(C) overestimate the amount of commercial activity generated by environmental disasters

(D) overestimate the economic significance of cohesive families and communities

(E) assume that the economic significance of goods and services does not lie solely in the price of those goods and services

Spoiler: :: OA
B

6. It can be inferred that the author of the passage would agree with which of the following assessments of the GDP as an indicator of the economic well-being of the United States?

(A) It masks social and environmental erosion more fully than the chief economic indicators of other nations.

(B) It is based on inaccurate estimations of the prices of many goods and services.

(C) It overestimates the amount of commercial activity that is generated in the United States.

(D) It is conducive to error because it conflates distinct types of economic activity.

(E) It does not take into account the economic utility of certain environmental and social conditions

Spoiler: :: OA
E

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Originally posted by dentobizz on 30 Sep 2013, 21:46.
Last edited by hazelnut on 13 Oct 2017, 06:35, edited 8 times in total.
Reformatted question
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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07 Oct 2013, 15:43
1
OE #1 : The passage mainly discusses the limitation of the GDP

OE#2 : Answering 'Evaluation' question requires understanding how a particular part of the passage functions in the passage as a whole. The limitations of the GDP as described in the second sentence are then, in the rest of the passage, tied to problems in the United States.

OE#3 :The author implies that because the GDP ignores the economic utility of certain things,it is not a accurate indicator.

OE#4 :By characterizing the GDP as a calculating machine that cannot subtract, the passage helps illustrate why something like an oil spill is misrepresented by the GDP.

OE #5 : By indicating that the GDP ignores environmental and social factors, the passage implies that policies dependent on the GDP will also ignore these issues.

OE#6 : Author states that the GDP ignores the economic utility of things such as a clean environment and social cohesiveness (lines 13-16)
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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03 Feb 2015, 12:50
took 7 Min to solve.

6 right one wrong
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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04 Jul 2015, 22:03
1C 2D 3B 4D 5B 6E All Correct

4 minutes 22 seconds

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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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18 Jun 2016, 14:55
Can someone please explain why B is the correct answer for question 3?
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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21 Sep 2016, 07:42
2
Key takeaway from this passage is not getting confused with "wrongly adding gain by commercial activity to GDP" v/s over-estimating gains by commercial activity. Gain is added to GDP but nowhere it is written that gain is over estimated. Estimate might very well be accurate, just that it shold not have been added to GDP. So GDP is over estimated in a sense but not the commercial activity by oil spill.
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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01 Oct 2016, 08:51
Can someone please explain why B is the correct answer for question 3?

Hi
since this is inference question , we can use POE and also infer from sentences quoted in passage "Thus, the GDP ignores the economic utility of such things as a clean environment and cohesive families and communities. "

3. It can be inferred that the author of the passage would agree with which of the following about the “economic significance” of those goods and services that are included in the GDP?
(A) It is a comprehensive indicator of a nation’s economic well-being.
in the whole passage author was trying to say opposite of this . Eliminate
(B) It is not accurately captured by the price of those goods and services.
Correct . See lines I mentioned
(C) It is usually less than the intrinsic value of those goods and services.
can't infer
(D) It is more difficult to calculate than the economic significance of those goods and services that are not included in the GDP.
question is about goods and services included in GDP . Out of scope
(E) It is calculated differently in capitalist countries than in non-capitalist countries.
in passage mentioned it as same in both type of countries
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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16 Apr 2017, 05:39
Hi Expert,
In question 2, does choice B not indicate that it contributes to a discussion of the definition of the GDP? In the first look of option B in Question 2, it seems that this is the correct choice as the passage started with describing the GDP.

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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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16 Apr 2017, 16:32
2
AR15J,

Quote:
In question 2, does choice B not indicate that it contributes to a discussion of the definition of the GDP? In the first look of option B in Question 2, it seems that this is the correct choice as the passage started with describing the GDP.

Choice B specifically states that, "[the second sentence of the passage] contributes to a discussion of the origins of the GDP." Although this sentence does in fact describe aspects of the GDP, the sentence does not contain anything that would contribute to a discussion of the origins of the GDP (ie how or why GDP was first developed and used). Rather, the sentence describes aspects of the GDP that the author believes represent a major flaw in the GDP; thus, choice D is the best fit.
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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28 Jul 2017, 12:55
Pretty Straightforward Passage. I wish GMAT threw more business passages on the actual exam.

1) C
2) D
3) B
4) D
5) B
6) E
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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21 Dec 2017, 06:07
Easy passage . All correct in 8 mins 15 seconds, including 3 mins to read.
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The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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17 Feb 2018, 21:53
https://www.theatlantic.com/past/docs/politics/ecbig/gdp.htm

http://altcoopsys.org/2017/12/30/the-atlantic-article-1995-if-gdp-is-up-why-is-america-down/

The Atlantic October 1995

If the GDP is Up, Why is America Down?

Why we need new measures of progress, why we do not have them, and how they would change the social and political landscape

by Clifford Cobb, Ted Halstead, and Jonathan Rowe

This yoking of national accounting to the lowest common denominator of price was to have large implications. It meant that every item of commerce was assumed to add to the national well-being merely by the fact—and to the extent—that it was produced and bought. At the same time, it meant that only transactions involving money could count in the national reckoning. This left out two large realms: the functions of family and community on the one hand, and the natural habitat on the other. Both are crucial to economic well-being. But because the services they perform are outside the price system, they have been invisible in our national accounting.

Long ago this omission was understandable. In Adam Smith's day the portion of life called "the market" occupied a very small part of physical and social space. The habitat seemed to have an infinite supply of resources, and an infinite capacity to absorb such wastes as the industry of the day might dump. The social structure seemed so firmly anchored in history that there was little thought that a growing market could set it adrift.

During this century, however, those assumptions have become increasingly untenable. It is not accidental that both the habitat and the social structure have suffered severe erosion in recent decades; these are precisely the realms that eighteenth- and nineteenth-century assumptions precluded from the reckoning of national well-being—in capitalist and socialist economies alike. This erosion has been mainly invisible in terms of economic policy because our index of progress ignores it; as a result, the nation's policies have made it worse. To understand how the national accounts became trapped in the assumptions of a bygone era, it is useful to study the era in which the current form of economic accounting was wrought.

By itself the GDP tells very little. Simply a measure of total output (the dollar value of finished goods and services), it assumes that everything produced is by definition "goods." It does not distinguish between costs and benefits, between productive and destructive activities, or between sustainable and unsustainable ones. The nation's central measure of well being works like a calculating machine that adds but cannot subtract. It treats everything that happens in the market as a gain for humanity, while ignoring everything that happens outside the realm of monetized exchange, regardless of the importance to well-being.
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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10 Jun 2018, 08:34
This is a very straight forward passage. Took me 7 minutes and got all correct.

Another advantage in almost all of the questions, when we have eliminated 3 choices and left with 2 at the end , one of the choice will definitely have strong words , which makes it easier to eliminate those.
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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04 Oct 2018, 23:57
quite easy passage, though made one silly mistake (didn't notice strong modifier in one of the answers), took 5.23, 5/6 correct
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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17 Oct 2018, 15:56
Took me 7:15 minutes and got all correct.
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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24 Mar 2019, 02:34
1
nigina93 wrote:
quite easy passage, though made one silly mistake (didn't notice strong modifier in one of the answers), took 5.23, 5/6 correct

Impressive time management. Having a good GMAT partner seems to be helping you)
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Re: The Gross Domestic Product (GDP), which measures the dollar  [#permalink]

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12 Apr 2019, 20:45
Time ~ 20 mins 5 out of 6 Correct

Action-item for exam: better time-management. Hope it will get better as I do more practice, and will report to the forum then.

Especially on Question 2: I think I made a mistake in choosing B because I overextend the scope of the second sentence. As in, yes, the second sentence contains the word " assumption ", and yes, it seemed like the second sentence is connected to the rest of the passage -- but answer D is better. Sentence two describes a major flaw about GDP. and that's it.
Re: The Gross Domestic Product (GDP), which measures the dollar   [#permalink] 12 Apr 2019, 20:45
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