List and describe four of the six categories of economic exchanges that are omitted from GDP calculations. Explain why these transactions are not included in GDP and give an example of each to help support your answer

Answer 1

Certain nonmarket goods and services are not counted in GDP. For example, if a family hires a babysitter to care for their children the service would be counted in GDP, but if a mother cares for her own children there is no market transaction which would allow for the service to be counted in GDP calculations. Underground activities consist of unreported exchanges. Most underground activities occur because the activity is either illegal or the participants in the exchange are trying to avoid paying taxes on the transaction. Since there is no official records of these transactions, it is impossible for them to be included in GDP. Sales of used goods are excluded from GDP because GDP measures current production and the value of the good was already captured in the year in which it was produced. Financial transactions, such as the value of stocks and bonds traded, are not included in GDP since they represent a transfer of ownership of an asset, as opposed to current production. Government transfer payments, such as social security and veterans' benefits, are not included in GDP because they do not represent a payment made for current production. Leisure is too difficult for national income accountants to quantify. If the residents of a country are able to consume more leisure time as a result of a decrease in the average work week, this is a benefit to those residents, but the GDP statistics do not reflect this improved situation.