Multiple Choice
Which of the following is a shortcoming of GDP as a measure of economic well-being?
11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)
Shortcomings of GDP
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Which of the following is NOT counted as a part of GDP?
A
The value of unpaid household work
B
Business investment in new machinery
C
Government spending on infrastructure
D
The purchase of new cars by consumers
Verified step by step guidance1
Step 1: Understand what GDP (Gross Domestic Product) measures. GDP is the total market value of all final goods and services produced within a country in a given period.
Step 2: Identify the types of activities included in GDP. These typically include consumption (C), investment (I), government spending (G), and net exports (NX).
Step 3: Analyze each option to see if it fits into one of these categories: Business investment in new machinery counts as investment (I); government spending on infrastructure counts as government spending (G); purchase of new cars by consumers counts as consumption (C).
Step 4: Recognize that unpaid household work is not included in GDP because it does not involve a market transaction or a monetary exchange, even though it has economic value.
Step 5: Conclude that the value of unpaid household work is NOT counted as part of GDP, while the other options are included.
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