Final answer:
GDP measures a country's economic output but does not reflect income distribution, failing to show how wealth is distributed among a nation's citizens.
Step-by-step explanation:
As a measurement of economic output and the nation's wealth, GDP fails to account for several factors that significantly impact the well-being of a country's citizens and the quality of life. Specifically, when comparing the options provided:
- Inflation is actually accounted for by GDP when looking at real GDP, which adjusts for price changes.
- Income distribution is not reflected in GDP. Therefore, GDP doesn't show how wealth is distributed among the people within a nation.
- Government spending is actually included in GDP calculations, as it contributes to the nation's economic activity.
- Trade balance is also accounted for in GDP through the net exports component, that is, exports minus imports.
From the list, a significant shortcoming of GDP as an indicator is that it does not consider income distribution.
A high GDP might mask the reality of significant income disparity, where a small percentage of the population holds a large portion of the wealth, which can lead to misleading conclusions about the overall economic health and standard of living in a country.