ECO2013 Which of the following are included in this year\'s GDP? Explain your an
ID: 1181052 • Letter: E
Question
ECO2013
Which of the following are included in this year's GDP?
Explain your answer in each situation.
a. Interest on an AT&T bond.
b. Social security payments received by a retired factory worker.
c. The services of a painter in painting the family home (state whether or not the painter is a family member or an outside contractor).
d. The income of a dentist.
e. The money received by Smith when she sells her economics textbook to a book buyer.
f. The monthly allowance a college student receives from home.
g. Rent received on a two-bedroom apartment.
h. The money received by Mac when he resells his current-year-model Plymouth Prowler to Stan.
i. Interest received on corporate bonds.
j. A 2-hour decrease in the length of the work-week.
Explanation / Answer
a. Interest on an AT&T bond.
Answer: It is included in GDP as an income in the hands of the receipient but not included in the GDP calculated by value added method as interest is a cost to AT & T.
b. Social security payments received by a retired factory worker.
The same priciple applies: since nothing is produced by social security payments, it is only a tranfer payment under value added method but this is an income and hence a part of GDP under income aggregation method.
c. The services of a painter in painting the family home (be specific about if it is the painter's home or a client's home).
Answer if the painter is an income tax assesee and the payment for painting service, the income tax return will include this income and hence will be included as a part of GDP. But if the payment is made in cash, especially if te painting is done at client's home, the income may not be reproted in tax returns and hence will automatically have no chance of getting included in GDP.
d. The income of a dentist.
It is an income. This income of the dentist after deductng the denist's expenditure on hs clinic equipment depreciation, rent and other consumables and electricity etc required to provide the denstist service, will be included in GDP
e. The money received by Smith when she sells her economics textbook to a book buyer.
Answer: this is a stary case and unlikely to be reported and will not get included in the GDP as the second hand text book actually is unlikely to lead to a capital gain ( price of the second hand book will be lower than the original textbook acquisition costs).
f. The monthly allowance a college student receives from home.
Answer: This monthly allowance is not an income earned though contribution to value added. It is part of the family expenditure and is already included once as part of the parent's income that goes into GDP. There would double counting if we include the student's allowance in GDP.
g. Rent received on a two-bedroom apartment.
Answer: this is an expenditure for the payer of rent but it is a fector income and will be included in the GDP.
h. The money received by Mac when he resells his current-year-model Plymouth Prowler to Stan.
Answer: The entire money received is in any case nbot an income. If by reselling Mac makes a capital gain ( Sales price minus the original acqusition price paid by Mac, this profit on sale is part of GDP. This will be automatically reported in the case of comopanies which sells assets. But stray cases of Mac will not get reported and hence even if there is any profit on resale after allowing for depreciation, this will not be included in GDP
i. Interest received on corporate bonds.
Answer: This will be a factor income to be included in GDP even if for the company it is cost. Same as in the case AT&T bond interest received.
j. A 2-hour decrease in the length of the work-week.
The decrease in the work week as such has no imp[lications of GDP unless the wages are reduced proportinately. So thie decrease in work week maymake the life better off but is not inclded in GDP. If there uis any increase or decrease in wages only that will affect GDP.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.