📚 Learning Guide
GDP Limitations and Household Production
easy

Which of the following scenarios best illustrates the limitations of GDP as a measure of economic activity due to household production?

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Choose the Best Answer

A

A family spends $500 on groceries to prepare meals at home.

B

A neighbor fixes a friend's leaky faucet for free.

C

A contractor builds a new home and sells it for $300,000.

D

A government agency purchases new office equipment for $10,000.

Understanding the Answer

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Answer

Gross Domestic Product, or GDP, measures the total value of all goods and services produced in a country, but it has limitations, especially when it comes to household production. Household production refers to the work people do at home, like cooking, cleaning, or caring for family members, which isn't counted in GDP. For example, if a parent stays home to take care of their children instead of working for pay, their valuable contributions to the family and society are ignored in GDP calculations. This means that a country could have a high GDP while many important activities, like raising children or volunteering, go unmeasured. Therefore, GDP may not fully represent the economic well-being or the true productivity of a nation when household work is not considered.

Detailed Explanation

When a neighbor fixes a friend's faucet for free, it shows work that isn't counted in GDP. Other options are incorrect because Buying groceries is spending money, which counts in GDP; Building and selling a house is a clear economic activity.

Key Concepts

GDP Limitations
Household Production
Economic Welfare
Topic

GDP Limitations and Household Production

Difficulty

easy level question

Cognitive Level

understand

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