STUDENT NAME: ISMAIL QAWASMEH STUDENT ID: 100856333
Problem Set 2
EC2202
Autumn Term 2018
Questions
1. What are important difficulties in the measurement of aggregate output using GDP?
Transaction in underground markets are difficult to account for or are not accounted for at
all. Another difficulty is assessing the value of government services as government goods
are not sold at market price. Therefore, the cost of the service is what the good will be
valued at which would lead to over or under valuing.
2. Why does the base year matter in calculating real GDP?
To nullify the inflation effect
3. Explain three problems in the measurement of real GDP.
One problem faced is known as double counting which is when the price of an individual
intermediate good is included with final product.
Another is personal activities that are unrecorded in the economy such as the duties
performed by oneself, housewives etc are not included in the GDP. This is known as self-
doing activities.
Overtime Quality of goods changed creating a problem in the measurement of GDP
