Reported GDP increases when, in fact, total production is unchanged when
I. there is a shift from household production to market production.
II. a previously illegal activity is legalized.

Question

Quizplus · Accepted Answer

Both scenarios involve a shift in how production is measured rather than an actual increase in total production. When household production moves to the market, it becomes part of the formal economy and is thus counted in GDP calculations. Similarly, when an illegal activity is legalized, it starts being included in GDP measurements.

Reported GDP Increases When, in Fact, Total Production Is Unchanged