Answer to Question #230288 in Macroeconomics for aqlama

Question

8. In recent decades, women have worked more hours in paid jobs and fewer hours in unpaid housework. a. How would this increase in work hours affect GDP? b. Explain why this increase in measured GDP will overstate the true increase in output. Also, explain how a set of augmented national accounts which includes home production would treat this change from nonmarket work to market work. c. Explain the paradox, “When a person marries his or her gardener, GDP goes down.” 

Answer 1

Solution:

a.). The increase in work hours in paid jobs will increase human capital, economic growth, and productivity in general, which will ultimately increase the overall GDP.

 

b.). The increase in measured GDP will overstate the true increase in output since GDP will not be able to capture the technological changes and variety that arises due to increase in work hours hence overstating the true increase in output.

A set of augmented accounts such as national income accounts economic production boundary and home production would deduct this change from non-market work to market work. That is, it will be recorded separately on the national income accounts.

 

c.). The paradox, “When a person marries his or her gardener, GDP goes down.” means that you will no longer be paying for the service but rather getting it for free. Therefore, no income is generated, hence consumption goes down reducing the value of GDP.