Question

Suppose that Planet Econ passed a law where all women on this planet must marry their butlers at time 1. After time 1, the husband still works on the same tasks at home as before but the wife no longer pays for her husband's salary. Part (a): Using the income-based approach, explain the effect of this law on Planet Econ's GDP at time ?? Part (b): Using the expenditure-based approach, explain the effect of this law on Planet Econ's GDP at time r? Part (c): Do you think GDP is an appropriate indicator to measure Planet Econ's economic activity? Why or why not?

Answer 1

In income based approach , when a woman marries her butler and then she stops paying him salary , thus in income based approach , total personal income in the economy will be , thus GDP will be lower

In Expenditure based approach , after marriage the husband will continue working as his own house but that will be not considered in the GDP calculation cause household chores does not have any monetary value attached with it thus again in expenditure based approach the GDP will be less

I think here GDP is not the appropriate indicator because at first is does not take into account the household chores but it does have some value and time attached with it along with this though income is less due to stop paying the butler his salary there can be a case that after marring his employer ( woman) his standard of living can increase thus consumption expenditure can be more we can not cover up all these effects in GDP thus we need more accurate indicator like GPI .