Explain what happens to the official measure of GDP in each of the following situations.
a. air quality improves significantly throughout the US but there are no effects on aggregate production or on market prices of final goods and services.
b. The US government spends considerably less on antipollution efforts this year than it did in recent years.
c. The quality of cancer treatments increases, so patients undergo fewer treatments, which hospitals continue to provide at the same price per treatment as before.
a) no change in GDP
b) GDP rises
c) GDP falls
a) no change
b) GDP falls as the U.S. Government spends less because government spending is a component of GDP
c)GDP falls
a,b,a
a. When air quality improves significantly throughout the US but has no effect on aggregate production or market prices of final goods and services, the official measure of GDP remains unchanged. GDP measures the monetary value of all final goods and services produced within a country's borders in a given period, and air quality improvements do not directly contribute to the production or pricing of goods and services. Therefore, the improvement in air quality will not have any impact on the GDP.
b. If the US government spends considerably less on antipollution efforts this year than it did in recent years, the official measure of GDP could be affected. Government spending is one of the components of GDP, specifically categorized as government expenditure. When the government reduces its spending on antipollution efforts, it leads to a decrease in government expenditure, which, in turn, reduces GDP.
c. If the quality of cancer treatments increases, resulting in patients undergoing fewer treatments while hospitals continue to charge the same price per treatment as before, the official measure of GDP may decrease. GDP is calculated by multiplying the quantity of goods or services produced by their corresponding market prices. In this scenario, the quantity of cancer treatments has decreased, and since market prices remain the same, the overall value of cancer treatments provided by hospitals decreases. Consequently, this reduction in the value of healthcare services would lead to a decline in GDP.