Which of the following would lead GDP to overstate economic welfare?

Question

Quizplus · Accepted Answer

Burning coal to produce energy creates more pollution, which has negative effects on the environment and human health. However, these negative effects are not accounted for in GDP, which only measures the value of goods and services produced. Therefore, GDP will overstate economic welfare in this scenario.

Answer: A and D
 A self-employed CPA taking a longer than normal vacation does not produce any economic value during that time, but GDP will still count his or her earlier work as part of GDP. This overstates economic welfare because the vacation time is not accounted for. Similarly, restaurant workers under-reporting tip income means that some economic activity is happening off the books and not being counted towards GDP, but individuals are still benefiting from the goods and services being provided by these workers. This may overstate economic welfare as well.

Choice B is not correct because home-cooked meals are a form of domestic production that is not counted in GDP, so it does not overstate economic welfare.

Which of the Following Would Lead GDP to Overstate Economic