Question

Pat gives up a $40,000 per year job to stay at home and take care of the house. By so doing, Pat saves $15,000 in child care and house cleaning services which he now performs himself. The direct effect on GDP from Pat's decision is a decrease of
A) $25,000. B) $15,000. C) $30,000. D) $40,000. E) $55,000.

Answer 1

Answer:

A

Explanation:

Pat´s GDP formula is: Y= income-expenses.

At the beggining Pat was obtaining an annual product of $25,000

Y1=$40,000-$15,000=$25,000

But now, Pat gave up his  income, which was $40,000. And also, now Pat does not have any expenses because he performs the child care ans the house cleaning. Then,

Y2=0

Y2-Y1= 0-$25,000=-$25,000. Pat´s decision decreased his annual product in $25,000