Final answer:
If expenses are overstated, net income will be understated. GDP could overstate living standards if the environment deteriorates or understate improvements if the crime rate declines, there's a greater variety of goods, or if infant mortality declines, as these factors are not fully captured in GDP figures. The correct option is b. Will be overstated
Step-by-step explanation:
If expenses are overstated on the income statement, net income will be understated. This is because expenses are subtracted from revenues to calculate net income. Therefore, if expenses are mistakenly too high, the net income figure will be lower than it should be, showing less profit.
Now, regarding the degree of change in the broad standard of living and its relation to GDP, the following points elaborate on whether GDP would overstate or understate the changes:
- The environment becomes dirtier: GDP could overstate living standards because it doesn't account for environmental degradation, which can reduce the quality of life.
- The crime rate declines: GDP could understate improvements in living standards because a lower crime rate can increase the sense of security and well-being without being directly reflected in GDP.
- A greater variety of goods become available to consumers: This could lead to GDP understating the improvement in living standards, as sheer economic growth numbers don't capture the positive impact of increased choices on consumer satisfaction and quality of life.
- Infant mortality declines: This could mean GDP understates the actual improvement in living standards because a lower infant mortality rate indicates better healthcare and well-being, which may not be directly reflected in GDP figures. The correct option is b. Will be overstated