GDP understates economic activity because:Group of answer choicesIt does not include non-market economic activityIt uses market prices to value outputPublic goods and services are not includedThe value of intermediate goods and services are not included

GDP does not include non-market economic activity: GDP measures the value of goods and services that are bought and sold in markets. However, a lot of economic activity happens outside of markets. For example, if you cook a meal at home or clean your own house, that contributes to economic activity, but it's not included in GDP because no market transaction occurred.

It uses market prices to value output: GDP uses market prices to value goods and services, which can sometimes understate the true value of these goods and services. For example, if a country produces a lot of goods that it sells at low prices, its GDP might be low even though it's producing a large quantity of goods.

Public goods and services are not included: Public goods and services, like national defense or public parks, are not included in GDP. These goods and services contribute to economic activity and well-being, but because they're not sold in markets, they're not included in GDP.

The value of intermediate goods and services are not included: GDP only includes the value of final goods and services - that is, goods and services that are bought by the final user. Intermediate goods and services, which are used to produce other goods and services, are not included in GDP. This can understate economic activity, because the production of intermediate goods and services also contributes to economic activity.