2) For each of the following, state which 2017 U.S. GDP category or categories (
ID: 1147797 • Letter: 2
Question
2) For each of the following, state which 2017 U.S. GDP category or categories (C, I, G, NX) are affected and whether 2017 U.S. GDP will rise/fall/stay the same. Briefly explain a) In December 2017, Carr, an American, buys a bottle of champagne produced in France in 2017 b) In January 2018, Mack, an American buys a 2017 Tesla Model S produced in California. c) In November 2017 Cooper, an American hires a US tax accountant to help with year-end individual tax planning d) In October 2017, Del Rio, an American buys a home in Castro Valley, CA. The home was just constructed in September 2017Explanation / Answer
A country's gross domestic product can be calculated using the following formula: GDP = C + G + I + NX
A) The purchase of a bottle of champagne produced in France increases imports. This thus reduces the value of NX( i.e. Export - Imports) and hence the GDP.
B) The purchase of Tesla Model S would be counted as consumption of durable goods and hence would be part of the 'C' component of GDP. Thus this would increase the GDP, due to increase in C.
C) The 'C' component also includes consumption of services. When an American uses the services of US tax accountant it is counted as part of GDP. Hence, in this case, the value of C and hence GDP would increase.
D) Since the house is newly built during the given year, it will be counted as part of GDP under the residential construction component of Investment (I). Hence, in this case, the value of I and thus GDP would increase. However, if it were the case that, the house purchase was constructed in the previous year, it would not have counted as part of this year's GDP. As the purchase of a previously owned house has already been counted in the GDP of the year it was constructed. Thus, only those residences that add to the overall housing stock are counted as part of GDP.
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