Which of the following statements about GDP (Gross Domestic Product) is incorrect?

Question

BlackTom AI · Accepted Answer

GDP measures the market value of all final goods and services produced within a country during a given period. Key concepts: the expenditure identity (GDP = C + I + G + (X − M)), exclusion of non-market household production, nominal valuation using market prices, and the distinction between aggregate GDP and individual incomes.

Step-by-step reasoning:
1. Expenditure approach: GDP sums consumption (C), investment (I), government spending (G) and net exports (X − M). Imports (M) appear with a minus sign because private and government spending (C and G) may include purchases of foreign goods; subtracting M removes spending on foreign-produced goods so GDP counts only domestic production.
2. Therefore imports are subtracted because they are not part of domestic production (they are foreign production). Option d states the opposite — that imports are subtracted because they are part of domestic production — which is factually wrong.

Why the other options are not the incorrect statement:
- a: Cooking for your family is not counted in GDP. This is correct in practical GDP accounting because household production is non-market (no market transaction), so it is excluded from measured GDP even though it is productive activity.
- b: A higher-priced car contributes more to nominal GDP than a lower-priced car. Correct: GDP sums market values, so with identical quantity, the higher price yields a larger contribution to nominal GDP (real GDP would adjust for price changes).
- c: Higher GDP corresponds to higher aggregate income in the economy because GDP equals total output and income. While higher GDP does not guarantee every individual’s income rises (distributional effects exist), the statement is intended at the aggregate level and is therefore not the blatantly false claim that d is.

Conclusion: Option d is incorrect because imports are subtracted precisely because they are NOT part of domestic production. This matches the provided correct answer (d).

Which of the following statements about GDP (Gross Domestic Product) is incorrect?Single choice

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