Question

reflect on all the activities and services people engage in that have no market price. analyz whether there should be a market value for these activities and services, and how you would change the GDP measurement to incorporate that value – including taking account of inflation.

Answer 1

In macroeconomics there are two most widely researched topics i.e ,economic growth and inflation.

GDP is the total of the money value of all final goods and services produced during a year. While calculating GDP, we must include only final goods and services. To avoid double counting we exclude all raw materials, intermediate goods. For example : To prepare a bread worth 0.50 ps. flour of the value is 0.25 ps.

The GDP measures the production and not sales. So goods produced in year are added. Whether they are not sold, added to inventaries. Goods and services prevailing in that year we call it GDP at current prices. But due to the rise or fall in prices, the money value of goods & services will changes even without a change in their quantity. To avoid such changes, the goods and services may be valued at the prices of some base year. if goods and services are valued at base year prices we call it GDP at constant prices.