1) Instead of taking the dirty laundry with you when you go back to visit your parents, you use a...

Question:

1) Instead of taking the dirty laundry with you when you go back to visit your parents, you use a Laundromat. Your use of the Laundromat means that

a) GDP will decrease and the country's standard of living will fall.

b) your parents' contribution to GDP will increase. GDP will remain the same.

c) what you paid for use of the Laundromat will be included in GDP.

d) real GDP does not change because the clothes are still being laundered but nominal GDP rises since you are now paying for the service.

2) The calculation of GDP excludes the value of

a) government expenditure on office supplies.

b) households' purchases of shampoo.

c) businesses' purchase of new machine tools.

d) a family member painting the family home.

e) expenditure on durable goods.

Gross domestic product:

Gross domestic product is the total value of goods and services produced in an economy during a given period of time.

The components of GDP are:

(i) Consumption

(ii) Investment

(iii) Government spending

(iv) Net exports

Answer and Explanation:

(Answer 1.) Option- C

As the individual would pay a certain amount for using the Laundromat service, this would be included as income ( of Laundry owner) in the GDP.

The other options are not valid as follows:

(i) GDP would not decrease, rather it would increase.

(ii) Parent's contribution would not increase as the laundry service is provided by a pruvate company.

(iii) Nominal GDP would not be affected as it is related to the price level.


(Answer 2.) Option D

All the activities which are carried out by households (such as parental care , cooking by mother, baby sitting by parents etc ) are not included in the GDP and go unaccounted as these do not include any exchange of money in return.

Similarly, all the illegal activities (gambling, drug business) are also not included in the GDP.

The family member are painting the home for their own welfare and is thus not included in the GDP.

The other options are invalid for the following reason:

(i) All the purchases by Consumers, business and government are included in the GDP.


Learn more about this topic:

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Gross Domestic Product: Definition and Components

from Economics 102: Macroeconomics

Chapter 4 / Lesson 3
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