Question

Which of the following statements is true? (LO6, 7) a) The United States has the world's largest GDP and per capita GDP. b) The United States has the world's largest GDP, but not the world's largest per capita GDP. c) The United States has the world largest per capita GDP, but not the world's largest GDP. d) The United States has neither the world's largest GDP nor the world's largest per capita GDP.

Short answer

b) The United States has the world's largest GDP, but not the world's largest per capita GDP.

Step-by-step solution

Understand the terms GDP and per capita GDP.

GDP (Gross Domestic Product) is the monetary value of all finished goods and services produced within a country's borders in a specific time period. It is an important measure of a nation's economic health. Per capita GDP is the GDP divided by the population, which reflects the average living standards in the country.

Determine whether the United States has the world's largest GDP.

The United States has the world's largest GDP. According to the World Bank data, as of 2019, the United States had the highest GDP of all countries, with a value of approximately 21.43 trillion U.S. dollars.

Determine whether the United States has the world's largest per capita GDP.

The United States does not have the world's largest per capita GDP. As of 2019, the World Bank data shows that countries like Luxembourg, Switzerland, and Norway have higher per capita GDP than the United States.

Compare the information from Steps 2 and 3 to the given statements.

Now that we know the United States has the world's largest GDP but not the world's largest per capita GDP, we can use this information to identify the true statement from the given options. a) This statement is false because the United States does not have the world's largest per capita GDP. b) This statement is true because the United States has the world's largest GDP and does not have the world's largest per capita GDP. c) This statement is false because the United States has the world's largest GDP but does not have the world's largest per capita GDP. d) This statement is false because the United States has the world's largest GDP. Therefore, the correct answer is: b) The United States has the world's largest GDP, but not the world's largest per capita GDP.

Key concepts

Understanding Per Capita GDP

Per capita GDP is a crucial economic measure that provides insight into the average economic output per person within a country. Unlike GDP, which measures the total output of a country, per capita GDP is calculated by dividing the GDP by the population. This makes it a valuable indicator for understanding the average living standards of residents and comparing economic prosperity across different countries.

Per capita GDP helps to:

• Indicate economic well-being: Higher per capita GDP suggests a higher standard of living and better economic conditions.
• Enable comparisons: It allows for comparisons between countries with different population sizes, offering a more level playing field for evaluation.
• Track economic growth: Monitoring changes in per capita GDP over time helps track the economic progress of a country.

However, per capita GDP does not consider income inequality, meaning a high per capita GDP does not always equate to wealth distributed evenly across the population. Understanding this limitation is key when using per capita GDP to assess economic well-being.

Economic Indicators

Economic indicators are vital statistics that provide insights into the economic performance and health of a country. They help policymakers, businesses, and investors to make informed decisions. GDP and per capita GDP are two of the most significant economic indicators.

• Gross Domestic Product (GDP): This measures the total economic output of a country within a certain period, reflecting the overall economic strength and size of the economy.
• Unemployment rate: This indicates the percentage of the labor force that is unemployed and actively looking for work. It provides insights into the health of the job market.
• Inflation rate: This measures the rate at which the general price level of goods and services is rising, indicating the purchasing power of money and cost of living.
• Trade balance: The difference between a country's exports and imports, providing insights into economic relationships with other countries.

These indicators are often monitored together as they can provide a comprehensive picture of the economy's stability and growth potential. Economic indicators can be positive signs of economic growth or potential red flags for underlying economic issues.

The World Economy

The world economy refers to the global network of economic activities and transactions that connect various countries. It encompasses the production, exchange, and consumption of goods and services worldwide. Understanding the world economy is essential because economies are increasingly interconnected.

• Global trade: Countries rely on international trade to obtain essential resources and tap into broader markets. This interconnected trade facilitates economic growth but also makes countries vulnerable to global economic shifts.
• Foreign direct investment (FDI): Investment from one country into business interests in another helps stimulate economic development and enhance global cooperation.
• Economic alliances and organizations: Institutions like the World Trade Organization (WTO) and International Monetary Fund (IMF) aim to facilitate cooperation and provide financial stability across borders.

As countries become more economically interdependent, events such as financial crises or technological advances can have ripple effects worldwide. Understanding the dynamics of the world economy enables countries to better navigate these challenges and seize opportunities for growth.