Gross domestic product understates the total production of final goods and services because of the omission of

Question

Quizplus · Accepted Answer

Gross domestic product (GDP) only includes goods and services produced for sale in the market, but it does not consider some economic activities that occur outside the market economy. Household production, such as cooking and cleaning done by individuals in their own homes, is an example of economic activity that is not included in GDP. This omission understates the true level of total production of goods and services in an economy. Therefore, option D is correct. Option A is not correct because exports are included in GDP as they represent the production of goods and services that are sold in foreign markets. Option B is not correct because inflation is a general increase in prices, and it affects the measurement of GDP but does not omit any economic activity. Option C is not correct because intermediate goods are already accounted for in GDP as they are included in the value of final goods and services that are sold in the market.

Gross Domestic Product Understates the Total Production of Final Goods