If a family replaces self-provided child care with paid child-care services, what measurement issue arises for GDP and welfare?
Answer and explanation
Correct answer: GDP rises even if the total care service remains the same
Unpaid care performed within a household is generally outside measured market production, while a purchased child-care service has a recorded price and is included in GDP. If the paid worker supplies the same amount and quality of care, measured GDP rises because the activity becomes market production. However, the family’s actual care received may be unchanged, so GDP growth does not necessarily mean higher welfare.
Frequently asked questions
What is the correct answer to this question?
GDP rises even if the total care service remains the same
Why is this the correct answer?
Unpaid care performed within a household is generally outside measured market production, while a purchased child-care service has a recorded price and is included in GDP. If the paid worker supplies the same amount and quality of care, measured GDP rises because the activity becomes market production. However, the family’s actual care received may be unchanged, so GDP growth does not necessarily mean higher welfare.
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.
