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) understates the total production of final goods and services because it does not include the underground economy, which consists of unreported income from the production of legal and illegal goods and services, either because of non-disclosure or because the transactions are illegal. Intermediate goods are not included in GDP to avoid double counting, but their exclusion does not cause an understatement. Inflation affects the value of GDP but is accounted for in real GDP. Exports are included in GDP calculations, so their exclusion does not cause an understatement.

Gross Domestic Product Understates the Total Production of Final Goods