How can the service from living in an owner-occupied house be included in GDP?
Answer and explanation
Correct answer: By adding imputed rent
GDP includes current services, not only transactions involving cash. An owner-occupied house provides a housing service to its owner even though no rent is actually paid. National accounting therefore estimates the rent that a similar house could earn in the market and includes that imputed rent as the value of the current housing service. The house itself is not counted again as a new good, so option B is correct.
Frequently asked questions
What is the correct answer to this question?
By adding imputed rent
Why is this the correct answer?
GDP includes current services, not only transactions involving cash. An owner-occupied house provides a housing service to its owner even though no rent is actually paid. National accounting therefore estimates the rent that a similar house could earn in the market and includes that imputed rent as the value of the current housing service. The house itself is not counted again as a new good, so option B is correct.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
