Respuesta :
What are the four main limitations of GDP accuracy? Non-market activities, underground economy, negative externalities, and quality of life. GDP stands for gross domestic product, which is the value in monetary form of all finished goods and services that are produced in a country's borders over a specific period of time. Non-market activities refer to things that happen for self-consumption. The underground economy refers to economic activity that goes now within a country that is not recorded or taxed by the government. A negative externality is a cost that is absorbed by a third party due to an economic transaction. Quality of life refers to what an individual or group experiences.
Four main limitations of GDP accuracy are : Non Market Activities, Negative Externalities, Quality of Life , Underground Economy
GDP ie Gross Domestic Product denotes the total value of goods & services produced in an economy during a given period of time.
It materialistically denotes the level of goods & services, hence standard of living enjoyed by people.
Still, it has many limitations to be considered as an apt measure of welfare :
- Non Market Activities : Many goods & services are not included in market monetary transactions, eg - care work services of female family members. These activities lead to sense of wellbeing, but are not accounted for in GDP
- Negative Externalities : Externalities are economic activities which have effect on third parties un involved in the activity, like pollution as a negative externality of production. Such negative externalities reduce level of welfare, but still are not aptly treated in Externalities.
- Quality of Life : Composition of GDP & type of goods & services consumed, rather than quantity of goods & services consumed - effects quality of life & welfare. Eg - Health expenditure signifies higher welfare, but expenditure on addiction goods (like alcohol) doesn't
- Underground Economy : This denotes the economic activities unrecorded in government statistics, because of being illegal (like smuggling) or not complying tax legislation. These unreported economic transactions lead to inaccurate estimation of GDP as a welfare measure.
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