📚 Learning Guide
GDP Limitations and Household Production
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If a country experiences a significant increase in household production activities, which of the following is the most likely underlying reason for this increase in economic welfare that GDP does not capture?

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Choose the Best Answer

A

Households are becoming more self-sufficient and providing more services without monetary exchange.

B

The government is increasing its spending on public services.

C

There is a rise in the number of businesses offering paid services.

D

The country's net exports are increasing dramatically.

Understanding the Answer

Let's break down why this is correct

Answer

When a country sees more household production, like cooking, cleaning, or childcare done at home, it suggests that people are finding ways to meet their needs without relying on paid services. This can improve economic welfare because families may feel more satisfied and connected by spending time together while saving money. For example, if a family decides to cook meals at home instead of eating out, they not only save money but also enjoy healthier food and quality time together. However, GDP does not count this household production because it only measures money spent in the market. Therefore, even if GDP remains the same, the actual well-being of people can improve through these unpaid activities that enhance their quality of life.

Detailed Explanation

When families do more work at home, they save money. Other options are incorrect because Some might think that more government spending means more welfare; People might believe that more businesses mean more welfare.

Key Concepts

GDP Limitations
Household Production
Economic Welfare
Topic

GDP Limitations and Household Production

Difficulty

medium level question

Cognitive Level

understand

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