Scenario: A refrigerator produced in the U.S. by a Korean company, and sold (in

Question

Scenario: A refrigerator produced in the U.S. by a Korean company, and sold (in the year it was produced) in the U.S. to an individual in the U.S.

Instructions:

A) Does the scenario provided count toward the GDP (yes or no)?

B) If you answered “YES” for part A: Under which component or components: Consumption (C), Investment (I), Government (G), Exports (EX) or Imports (IM).

Note: the only circumstance under which one item may count for multiple components is if a scenario involves Consumption and Imports.

C) If you answered ‘NO” for part A:  Briefly explain why it is not.

NOTE: Regardless of whether you answered “YES” or “NO”, feel free to offer, although it not required, any additional information or assumptions that you are making.

Explanation / Answer

(A)

A final good or service produced within the domestic territory of a country is counted towards the GDP of that country.

In the given case, even though, production is being undertaken by a Korean company, refrigerator is being produced with in the United States.

So,

Refrigerator will be counted towards the GDP.

Yes, the scenario provided would be counted towards the GDP.

(B)

This refrigerator is being purchased by an individual.

When a household or individual purchase a final good or service, expenditure incurred is counted as part of consumption component of GDP.

So,

The given scenario will be counted under Consumption (C) component.

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