Answer to Question #235538 in Macroeconomics for Ross

Question

Review the discussion of bias in the CPI. Explain why failure to consider the quality improvement of a new good leads to an upward bias in the trend of the CPI. Pick a good you are familiar with. Explain how its quality has changed and why it might be difficult for a price index to capture the increase in quality.
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.

Answer 1

a) Increase in work hours increases the work covered for a respective period. For instance, transportation jobs call for more work-hours which tend to increase income generated, hence increase in GDP.

b) The output in some occasions may be having some errors. This comes as the output results may omit the charges which are part of the respective processes. Therefore, increase in GDP may be a true definition of economic state.