Social Studies Praxis Practice Test

What is the main purpose of GDP as an economic indicator?

1. A. Measure national happiness

2. B. Assess economic growth

3. C. Calculate income inequality

4. D. Determine employment rates

The correct answer is: B. Assess economic growth

Gross Domestic Product (GDP) serves as a comprehensive measure of a country's economic activity and performance. Its primary purpose is to assess economic growth by quantifying the total value of all goods and services produced over a specific period, usually a year or a quarter. A rising GDP indicates that the economy is growing, which typically suggests an increase in production, consumption, and, by extension, overall economic health. While GDP provides some insights into a nation's economic status, it does not directly measure aspects like national happiness or well-being, income inequality, or employment rates. Other economic indicators might be used to assess these areas specifically, but GDP's focused purpose is centered on economic growth and output. This makes it a necessary tool for policymakers and economists who want to understand the trajectory of economic development and make informed decisions.