3. Which of the following are included and which are excluded in calculating thi

Question

3. Which of the following are included and which are excluded in calculating this year's GDP? Explain in each instance. (1 point each. Total 10) (a) A monthly scholarship cheque received by an economics student. (b) The purchase of a new corncrib by a farmer. (c) The purchase of a used tractor by a farmer. (d) The cashing in of a savings bond. (e) The services of a mechanic in fixing the radiator in his own car. (f) Canada Pension Plan cheques received by a retired person. (8) An increase in business inventories (h) Government purchase of missiles (i) A barber's income. (j) Income received from interest on a corporate bond.

Explanation / Answer

The GDP can be defined as the market value of all goods and services produced during a financial year in the domestic territory of the country. It includes only newly produced goods in the current year and it does not includes transfer payment.

a.

Since a scholarship cheque received by the economic student is a transfer payment by the government to the student. Hence it will not be included in the GDP.

b.

Since the corncrib is newly produced goods and it is purchased by the farmers. Hence it will be included in the GDP.

c.

Since the used goods are not included in the GDP. Hence the purchase of used tractor by the farmers will not be included in the GDP.

d.

Since the cashing of bond, is part of the saving of last financial year, so it will not be included in the GDP.

e.

Since the services of mechanic in fixing radiator in his own car, is an imputed services. hence it will not be included in the GDP because imputed services or rent are not included in the GDP.

f.

Since Pension to a retired person included in the GDP because it is not transfer income but it is a income for the work which have been done by the workers in the earlier years. So Canada pension plan cheque will be included in the GDP..

g.

Since an increase in the business inventory means an increase in the production, so it will be included in the GDP.

h.

Since government purchase of missiles is purchase of new goods. Hence it will be included in the GDP.

i.

Since A barber income is income received by providing services in the current year. Hence it will be included in the GDP.

j.

Since income received from the interest on the corporate bonds are part of income of current year. Hence it will be included in the GDP because it is earned during this financial year.

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