Answer the following questions:
a. In 2004, four major hurricanes hit Florida. Explain how this destruction of property, and the rebuilding that went on afterward, affected GDP.
b. Explain how GDP has trouble accounting for other parts of the economy as well.
a. The goods that are destroyed are not subtracted from GDP, and there is no way to account for the loss in productive capacity to the economy. The rebuilding that occurs after a natural disaster, however, is counted in GDP; for this reason, disasters like hurricanes and earthquakes can actually end up increasing GDP.
b. GDP also cannot account for production of goods outside of the market system, like household production. Also, unreported and illegal transactions (the underground economy) are not counted in GDP. These factors will cause GDP to understate the true level of production in the economy.
You might also like to view...
Differentiate between the process of defending an undervalued currency and an overvalued currency?
What will be an ideal response?
What are the different types of auctions based on how people place their bids?
What will be an ideal response?
Refer to Table 2-14. If the two countries specialize and trade, who should export motorcycles?
A) There is no basis for trade between the two countries. B) They should both be importing motorcycles. C) Scotland D) Ireland
Pork can be used to produce bacon or sausage, but not both. If the price of bacon rises for some reason, then, everything else equal,
a. the price of sausage will rise. b. the price of sausage will fall. c. the resources used in raising Pork will become more expensive. d. the resources used in raising Pork will become less expensive.