Billy is a plumber. He earns 15 per hour. One morning, just ...

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Billy is a plumber. He earns 15 per hour. One morning, just before he was leaving for work, he found a pipe in his kitchen leaking. He spent two hours repairing the pipe.
 
  i) How will this affect the calculation of GDP?
  ii) If Billy had spent two hours working for one of his clients, what would have been the effect of his activity on the calculation of GDP?

Question 2

In a market economy, what encourages firms to develop new products and production processes?
 
  A) contracts B) insurance C) patents D) accounting rules

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Answer to Question 1

i) If Billy spends two hours repairing a pipe in his kitchen, he does not receive any monetary payment and his activity does not affect the calculation of GDP. This is because home production is not included in the calculation of GDP.
ii) If Billy had spent two hours working for his clients, GDP would have increased by 15  2 = 30.

Answer to Question 2

C