Question

In an economy, exclusion of ______ may lead to under estimation of the value of Gross Domestic Product (GDP).

1. Barter Transactions
2. Services provided by family members
3. Illegal activities
4. Depreciation of Assets

Options

• (i) and (ii)

• (ii) and (iii)

• (iii) and (iv)

• (i), (ii) and (iii)

Answer 1

In an economy, exclusion of Barter transactions, Services provided by family members and Illegal activities may lead to under estimation of the value of Gross Domestic Product (GDP).

Explanation:

• Barter transactions and unpaid services by family members are typically not recorded in market statistics, so their exclusion leads to an underestimation of GDP.
• Illegal or underground economic activities are also unreported, leading to an underestimation of measured GDP.
• Depreciation (consumption of fixed capital) is part of gross domestic product by definition, so its exclusion is not the usual cause of GDP underestimation.