Question

In: Economics

1-Although GDP provides a measure of output in an economy, it does have limitations. There are...

1-Although GDP provides a measure of output in an economy, it does have limitations. There are some things excluded from GDP that benefit society. Which of the following is true of GDP?

GDP excludes non-market activities such as household chores and illegal activities.

GDP does not count the value of leisure time enjoyed by individuals in the economy.

GDP fails to measure the costs of environmental damage.

All these statements are correct.

E is not correct

2-This question tests your knowledge of what activities are included in calculating GDP. Decide for each item whether it is part of GDP and, if so, to which expenditure category it belongs.

The cost of launching a space shuttle by NASA is:

A) Not counted in GDP

B) Counted as part of consumption

C) Counted as part of the investment

D) Counted as part of the government

E) Counted as part of net exports

This question tests your knowledge of what activities are included in calculating GDP. Decide for each item whether it is part of GDP and, if so, to which expenditure category it belongs.

Purchase of electricity by a family is:

Not counted in GDP

Counted as part of consumption

Counted as part of the investment

Counted as part of the government

Counted as part of net exports

Solutions

Expert Solution

1. "All of the statement are correct"

GDP excludes non-market activities such as household chores and illegal activities. GDP does not count the value of leisure time enjoyed by individuals in the economy. GDP fails to measure the costs of environmental damage made by industries while producing goods and services.

2. The cost of launching a space shuttle by NASA is " Counted as part of the government"

NASA funding comes from governemnt Budget passed by congress.

GDP by Expenditure Method = Household consumption + Gross Business Investment + Government Spending + Net Exports (Export - Import)

3.Purchase of electricity by a family is "Counted as part of consumption"

Expenditure method - The most widely used method to calculate GDP is expenditure method. This method aims to collect data on expenditure side by adding household spending, government spending, business investent and Net exports.

GDP by Expenditure Method = Household consumption + Gross Business Investment + Government Spending + Net Exports (Export - Import)

Here Purchase of electircity is payment for "service" which is recorded in Household consumption.


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