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

Question

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 
 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

2 
 2. Which of the following best describes the function of the second sentence  Highlighted ] 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.

3 
 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.

4 
 4. The comparison of the GDP to a calculating machine  (see  highlighted  text)  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

5 
 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

6 
 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

GMATNinjaTwo · Accepted Answer

AR15J ,

Choice B specifically states that, "  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.

arpitgarg · Answer

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.

dentobizz · Answer

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)

AR15J · Answer

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.

BillyZ · Answer

https://www.theatlantic.com/past/docs/politics/ecbig/gdp.htm

https://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.

warrior1991 · Answer

AndrewN   VeritasKarishma   BillyZ

Second sentence
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.  
 
GDP assumes that price of goods and services is the only factor while estimating GDP.And thereafter in passage, the author highlights that certain non-monetary factors that are also important are being ignored while estimating GDP.

On the basis of above I think E should be the right choice. But answer is D. Can you help

AndrewN · Answer

Hello,  warrior1991 . Your interpretation of the sentence is fine enough, but your conclusion is wayward. The passage never proposes any kind of alternative way of calculating the GDP, so  suggests a revision  in answer choice (E) is incorrect. Rather, the passage merely points out that economic factors other than  those goods and services involved in monetary transactions  exist. Thus, the problem or  flaw  is exposed in the method of calculating the GDP, but without any recommendation as to what should be done about it.

I hope that helps clarify the matter. Thank you for thinking to ask me.

- Andrew

Sajjad1994 · Answer

Official Explanation

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?

Difficulty Level:   Medium

Explanation

Answering this question requires understanding how a particular part of the passage functions in the passage as a whole. Te second sentence describes the GDP as being solely concerned with the prices of goods and services produced in the United States, aside from any other kind of value. The passage then goes on to imply that by ignoring value other than price, the GDP may actually mask problems present in the nation’s overall economy.

A.  The passage is concerned with calling into question the use of the GDP, not defending it.

B.  The passage does not mention how the GDP came to be used as a primary economic indicator.

C.  The passage does not describe the function of the GDP as being commonly misunderstood.

D. Correct.  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.

E.  The passage makes no explicit recommendations about revising how the GDP is measured.

The correct answer is D.

GMATRockstar · Answer

At the 15:17 mark on this video, I discuss strategies for finding the Main Idea and answering QUESTION #1. This passage has some important keywords that are helpful to pick up on as you read the passage for the first time!

https://www.youtube.com/watch?v=qbwzT4Oe3pQ

waytowharton · Answer

KarishmaB   GMATNinja   AjiteshArun   DmitryFarber   ExpertsGlobal5  
 mikemcgary

I have doubt in Q3 between options B and C.

(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.

I am not clear on why option C is incorrect. Isn't it one possible case of Option B and that too on the lower side. As per option B, not accurate could mean either higher or lower and Option C is talking about lower case which makes sense. Please let me know gap in understanding.

KarishmaB · Answer

This is given in the passage:

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,.. Thus, the GDP ignores the economic utility of such things as a clean environment and cohesive families and communities...

The author says that GDP considers that price dictates economic significance and GDP ignores economic utility of things such as clean env etc. So he is complaining that only price may not be an accurate measure of economic significance.

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.

Hence, (B) is perfect.

KarishmaB · Answer

The author doesn't say whether the intrinsic value is less or more than price. He says that price is the only measure considered while intrinsic value could be different (more or less) depending on the other factors that the product impacts. For example, if producing a product has a huge negative impact on the environment, its actual intrinsic value could be lower than price. On the other hand, if a product helps families stay together, its actual intrinsic value could be higher than its price. 
SO option (C) is not correct because the author doesn't say that intrinsic value is usually lower. He just says that price doesn't capture all variables that impact intrinsic value.

GMATNinja · Answer

Question 3 
 
Let's start by breaking down the passage.

The author makes the following points about GDP:
  GDP is used to indicate the economic well-being of a country based on the "dollar value of finished goods and services."  Because it doesn't measure the "intrinsic value" of goods and services, the GDP fails to account for the "economic utility" of things like "a clean environment."   As an example of this failure, the GDP would register an oil spill as an economic gain, since it "generates commercial activity."

And here's question 3 again:

Answer choice (C) suggests that the "economic significance" of goods and services included in the GDP is less than their "intrinsic value." Is that what the passage is saying?

Not really. The passage says that the GDP simply  ignores  the intrinsic value of goods and services. But that doesn't mean that the "economic significance" of these goods and services is somehow "less than" their "intrinsic value."

From another angle: it doesn't really make sense to directly compare "economic significance" and "intrinsic value" as (C) does. According to the author, the GDP assumes that the "economic significance of goods and services lies solely in their price," as opposed to their "intrinsic value." The author then suggests that by failing to measure the "intrinsic value" of goods and services, the GDP doesn't accurately capture their "economic significance."

But again, that's different than saying that the "economic significance" of goods and services is somehow  less than  their "intrinsic value." So we can eliminate (C).

Now here's (B) again:

This sounds more like what the author is saying. The author points out that the GDP doesn't measure the "intrinsic value" of goods and services. As a result, it ignores the economic utility of a clean environment. As an example of this problem, the author tells us that the GDP would register an oil spill as an economic gain.

So basically, by failing to measure the "intrinsic value" of goods and services, the GDP doesn't really capture their "economic significance." For instance, it would consider an oil spill an economic gain, which is clearly a mistake.

Since (B) lines up nicely with the passage, it's correct.

I hope that helps!

Akshita0109 · Answer

All correct in 8.46 min have to work on the timing.

Posted from my mobile device

AndrewN · Answer

What is wrong with spending 8:46 to answer a 6-question set? By my reckoning, such pacing—around 1:28 per question, to be exact—would be buying you about 20 seconds per question, meaning you would come out 2 minutes  ahead  of the pace you would want to maintain if you were hoping to finish the section in the nick of time. You should be congratulating yourself on going 6/6. Keep up this sort of performance, and your timing will start to drop on its own as a result of an improved understanding and a fine-tuned approach.

Good luck with your studies.

- Andrew

PranjalJ · Answer

Could someone please tell me why E is incorrect in Q4?

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.

Here it says that "it can portray it as an economic gain" i.e. instead of subtracting the loss, GDP adds it as economic gain.

KarishmaB · Answer

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

Note that option (E) says "GDP tends to exaggerate the amount of commercial activity"\

But that is not correct. The passage tells us that the oil spill does generate commercial activity. So it does get added to GDP. GDP is not exaggerating the amount of commercial activity.

What GDP cannot do is subtract the damage from the total value (which will likely be far more than the value generated by commercial activity).

That is why option (D) is correct.

Isha2701 · Answer

KarishmaB   GMATNinja : could you please explain why D is wrong in Q.3. I was confused between B and D.

guddo · Answer

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?

The passage argues that GDP is a flawed measure of well-being because it treats the economic significance of goods and services as if it were captured simply by  their market price . The author clearly rejects that idea. For the author, price alone does not reflect true economic significance, since GDP ignores nonmarket goods like a clean environment and can even count harmful events as gains.

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

This is the opposite of the passage. The author argues that GDP leaves out important parts of well-being.

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

This is correct.  The author’s whole criticism depends on this point.  GDP assumes price fully captures economic significance, but the author argues that this is false.

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

The passage does not say this. The author says GDP ignores intrinsic value, but does not claim price is usually lower than intrinsic value.

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

Nothing in the passage supports this comparison.

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

The passage says countries of both kinds rely on indicators such as GDP, not that they calculate economic significance differently.

Answer: (B)

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

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GMAT Reading Comprehension (RC) Questions

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

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615 to 715 in 15 Days (Ria's Strategies)

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