List and discuss various types of goods and services omitted from measured GDP
What will be an ideal response?
Household production, such as preparing meals and taking care of children, includes productive activities but does not involve market transactions. Therefore, household production is omitted as part of GDP. Underground production, such as working for cash to avoid taxes or engaging in illegal activities, is not reported to the government and hence is not counted as part of GDP. Leisure time and preserving and improving the natural environment are not production per se but are clearly economic goods. They are not counted as part of GDP because it is hard to quantify and put a monetary value on them.
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Suppose Amber Crombie and her husband Fitch spend $1400 this year on healthcare and medicines for the chronic nasal congestion they suffer living next to smelly Lake Lillypad. How does their expenditure affect GDP?
A) It doesn't affect GDP at all. B) GDP would decrease by $1400. C) GDP would increase by $1400. D) GDP would increase by $1400 only if the healthcare and medicines cured their chronic nasal congestion; if it remains uncured, then GDP would remain unchanged.
For this question, assume that exchange rates flexible and that the exchange rate expected to occur in one year is not constant. Suppose that individuals now expect that the domestic central bank will pursue expansionary monetary policy in one year. This expected future monetary expansion will cause which of the following to occur?
A) The current nominal exchange rate will decrease. B) The current nominal exchange rate will increase. C) The current nominal exchange rate will not change. D) The effects on the current nominal exchange rate are ambiguous.