TEST YOURSELF

2.   Figure 1 shows an economy with a fixed aggregate supply curve, and an aggregate demand curve that shifts out each year, from D₀ to D₁ to D₂, etc. Prices would rise continuously, from P₀ to P₁ to P₂, and production would increase, from Y₀ to Y₁ to Y₂.

            Figure 1

 DISCUSSION QUESTIONS

3.   There are many reasons why the GDP is not an accurate measure of the nation’s well-being. The GDP excludes most goods and services that are not sold in the market, some of which (like child care in the home) are very valuable. It omits consideration of the value of leisure. While it adds up the money value of “goods,” it makes no subtraction for “bads,” like pollution and natural disasters. It takes no account of income distribution—and presumably our assessment of a nation’s well being would depend in part upon whether the goods and services are concentrated among a few people, or are widely distributed.

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