Give two reasons why GDP does not reflect total production in an economy
What will be an ideal response?
The measure of GDP leaves out production in two cases. First it does not count household production as part of production. A person engages in household production if he or she produces for himself or herself. Do-it-yourself work is household production. Homemaking and child care done by a parent for their own child is household production. This is clearly productive work, but is excluded from the calculation of GDP. Second, GDP does not include the production of the underground economy. This includes illegal activity, work that is unreported to avoid taxes, and work that is unreported to avoid regulation. Again these are all productive activities, yet are not included in GDP.
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When the real interest rate falls, the consumption function
A) does not shift and there is a movement downward along the consumption function. B) shifts upward. C) does not shift and there is a movement upward along the consumption function. D) shifts downward. E) does not shift and there is no movement along the consumption function.
Diminishing marginal product first sets in at the minimum point of the
a. ATC curve. b. AVC curve. c. AFC curve. d. MC curve.