Which of the following is a limitation of gross domestic product (GDP) that causes GDP to understate production in an economy?

Choose 1 answer:
A) GDP doesn't include goods that last a long time.
(B) GDP doesn't include spending on the military.
(c) GDP doesn't count goods produced domestically but sold in other countries.
(D) GDP doesn't include nonmarket transactions.
(E) GDP doesn't include services.

Question

Which of the following is a limitation of gross domestic product (GDP) that causes GDP to understate production in an economy?

Choose 1 answer:
A) GDP doesn't include goods that last a long time.
(B) GDP doesn't include spending on the military.
(c) GDP doesn't count goods produced domestically but sold in other countries.
(D) GDP doesn't include nonmarket transactions.
(E) GDP doesn't include services.

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ Understand the concept of GDP: Gross Domestic Product (GDP) measures the total value of all final goods and services produced within a country's borders in a specific time period. ‖ ‖ step 2 ⋮ Identify what GDP includes: GDP includes the market value of goods and services, which means transactions that have a market price and are traded in the market. ‖ ‖ step 3 ⋮ Recognize what GDP does not include: GDP does not include nonmarket transactions, which are services and goods that do not have a market price and are not sold in the market. This includes household labor and other nonmarket services. ‖ ‖ step 4 ⋮ Evaluate the answer choices: Analyze each option to determine which one is a limitation of GDP that causes it to understate production in an economy. ‖ ‖ step 5 ⋮ Eliminate incorrect options: - GDP does include goods that last a long time as part of its investment component. - GDP does include spending on the military as part of government expenditure. - GDP does count goods produced domestically, regardless of whether they are sold domestically or exported. - GDP does include services as part of its services component. ‖ ‖ step 6 ⋮ Identify the correct option: Based on the analysis, the limitation that causes GDP to understate production is the exclusion of nonmarket transactions. ‖ ∻Answer∻ ***D*** ∻Key Concept∻ ⚹Nonmarket Transactions⚹ ∻Explanation∻ ⚹GDP understates production in an economy because it does not include nonmarket transactions, which are services and goods that do not have a market price and are not sold in the market.⚹◊What statistical methods can be used to adjust for limitations in GDP calculations that lead to understating production in an economy?⍭ Generate me a similar question◊

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