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Although GDP is reasonably good measure of nation's input, it does not necessarily...

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maheen100 | Student, Undergraduate | (Level 1) Honors

Posted October 6, 2012 at 6:55 PM via web

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Although GDP is reasonably good measure of nation's input, it does not necessarily include all transactions and production for that nation.

 

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or expenditure methods of calculating GDP for Canada? Check all that apply:

Variety of goods available to consumers

The parts of a canadian car that are produced in US

Funds spent by city governments to renovate their buildings

The loss of enjoyment people incur when scenic land is converted to commercial use

The value produced by doing your own laundry.

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Lorraine Caplan | College Teacher | (Level 2) Senior Educator

Posted October 6, 2012 at 9:37 PM (Answer #1)

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The correct answers are:

  • The loss of enjoyment people incur when scenic land is converted to commercial use

and

  • The value produced by doing your own laundry.


In the first instance, we do not place a monetary value on this sort of intangible loss, unless there is litigation involving personal injury.  There would be unlikely to be much agreement about how to monetize such losses for the purposes of GDP, and there is no product or service to measure. 

While we could place a monetary value on people's time and what they save by doing certain services for themselves, we have chosen not to do so for GDP calculations for a number of reasons, one being that people would tend to over-estimate the value of their time, another being that a savings is not the same as product or service.  This issue also surfaces when it comes to policy discussions on Social Security because so many women have stayed home with their children, performing valuable services that are not counted for Social Security purposes.

Other areas of the economy that are not captured in GDP include the sale of used goods and the black market.  The sale of used goods is excluded because, since those dollars were counted when the goods were new, their resale would falsely inflate the calculation.  The black market, of course, is the market of unreported transactions, so these cannot be part of the GDP. 

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