Question

The RGDP tends to underestimate the productive activity in the economy because it excludes the value of output from:

A
The consumption of fixed capital.
B
Public transfer payments to households.
C
work done around the house by the homeowner.
D
all of the above.

Answer 1

RGDP underestimates the productive activity in an economy because it excludes the value of non-market activities such as work done around the house by the homeowner, but not the consumption of fixed capital or public transfer payments.

Step-by-step explanation:

The RGDP, or Real Gross Domestic Product, tends to underestimate the productive activity in an economy because it only includes production that is exchanged in the market. Specifically, the RGDP excludes:

• Work done around the house by the homeowner, such as food preparation and childcare, because these actions are not sold in the marketplace.
• Public transfer payments to households, like social security or welfare, because they do not represent production of goods and services.
• The consumption of fixed capital is not an exclusion from RGDP as it is accounted for by depreciation.

Therefore, the answer to the student's question is C: work done around the house by the homeowner.