Final answer:
Household production leads GDP to understate the true value of production in the economy. Household tasks are not included in GDP unless they are outsourced and exchanged in the market. Despite shifts in labor force participation, GDP remains an incomplete measure of economic activity.
Step-by-step explanation:
The existence of household production leads GDP to understate the true value of production in the economy because GDP includes only those goods and services that are exchanged in the market. Household production such as cooking, cleaning, and childcare, which are not sold in the marketplace, do not count towards GDP. When individuals perform these tasks themselves, the value of these services is not reflected in GDP calculations, despite contributing to economic activity and overall well-being.
Furthermore, the increase in women's participation in the labor force has shifted some previously non-market activities into the market economy, leading to an increased GDP that might suggest higher levels of consumption than actually occur. For instance, as more women joined the workforce, some tasks they traditionally performed at home, like child care and food preparation, started being outsourced and thus included in GDP calculations.
However, even with this market shift, many services remain within the non-market sphere and continue to be uncounted. The work done within households across the country remains a significant yet unmonetized sector, leaving GDP as an incomplete measure of a nation's economic activity and well-being.