The table below shows a series of market transactions in the life of an automobi
ID: 1150416 • Letter: T
Question
The table below shows a series of market transactions in the life of an automobile.
Transaction
Time Frame
Cost
Parts sold to car maker
Fall 2017
$13,000 in parts
Factory labor leads to assembled car
Winter 2017
$11,000 in labor
Dealer buys car
Spring 2018
$28,000 for the car
Dealer sells car to customer
Summer 2018
$33,000 for the car
Describe two different ways that these transactions could contribute to gross domestic product (GDP) for the years 2017 and 2018. Which way is used in practice?
Transaction
Time Frame
Cost
Parts sold to car maker
Fall 2017
$13,000 in parts
Factory labor leads to assembled car
Winter 2017
$11,000 in labor
Dealer buys car
Spring 2018
$28,000 for the car
Dealer sells car to customer
Summer 2018
$33,000 for the car
Explanation / Answer
The aim of national income is to obtain a measure of total quantity of goods and services produced for the market in a given country over a given period of time. To measure the aggregate economic activity we are interested in gross domestic product or GDP. GDP is the dollar value of final output produced during a given period of time within the borders of United States. There are three approaches to measuring GDP:
Sales of raw metarial and labor cost is cost of value added and changes the GDP by value added approach. Both of these factors are calculated in 2017, then both of them increases GDP in 2017. The parts and labor cost increases GDP by ($13000+$11000)=$24000
The Buying and selling of the car increases GDP by $33000 inexpenditure approach in 2018.
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