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Question
What are non-monetary exchanges? Give an example. Explain their impact on the use of a gross domestic product as an index of the welfare of the people.
Solution
Non-monetary exchanges are the transactions of purchase and sale of goods and services which occur without money. This refers to all those services rendered by family members to each other. When money is not involved in these transactions, it is not accounted in GDP calculation, because GDP calculates the goods and services produced in an economy during a period of time in terms of money. These non-monetary exchanges are not accounted for GDP calculation which results in the underestimation of GDP. Anyhow, this exchange has a positive effect on the welfare of the people.
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