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 result in an increase in measured GDP, even though total production has not changed. In scenario i, the shift from household production to market production means that goods and services that were previously produced and consumed within households (such as cooking or cleaning) are now being bought and sold in the market, leading to an increase in GDP. In scenario ii, the legalization of a previously illegal activity means that the value of that activity can now be included in GDP. For example, if the production and sale of marijuana were legalized, the value of that production would be included in GDP.

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