GDP is not a perfect way to measure economic activity because:

• A. It fully reflects changes in income distribution among citizens.
• B. It does not account for non-market transactions such as household labor.
• C. It measures environmental quality and resource depletion.
• D. It includes the value of illegal activities in its calculation.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand what GDP (Gross Domestic Product) measures. GDP calculates the total market value of all final goods and services produced within a country during a specific period.
2. Step 2: Recognize the limitations of GDP as a measure of economic activity. GDP only includes transactions that occur in formal markets and have a monetary value.
3. Step 3: Identify that GDP does not account for non-market transactions, such as household labor or volunteer work, because these activities do not involve market exchanges and thus are not recorded in official statistics.
4. Step 4: Note that GDP does not directly measure income distribution among citizens, environmental quality, resource depletion, or illegal activities, although these factors affect economic well-being and sustainability.
5. Step 5: Conclude that the main reason GDP is not a perfect measure of economic activity is because it excludes non-market transactions, which can be significant in understanding the full scope of economic contributions.