Explain which of the following transactions would be directly counted in 2015’s

Question

Explain which of the following transactions would be directly counted in 2015’s GDP. In each case, explain whether the action causes an increase in Consumption, Investment, Govt. Purchases or Net Export. If the transaction is not included in 2015’s GDP, explain why not.

(a) You purchase $5000 worth of Google’s stock.

(b) A record company produces 500, 000 CDs of a new artist. Only 100,000 are sold at the price of $15.00.

(c) You purchase a 2011 Lexus for 25,000 and then purchase a set of special tires for $1600.

(d) You fix your friend’s car saving him $300.00 and in return, he paints your house saving you $400.00.

Explanation / Answer

Solution :

a) Purchase of Google's stock is not included in 2015’s GDP because a share of stock is not a good or service . Stocks represent ownership in a company . By buying stock in a corporation , you are a part owner . Buying and selling stock is like buying a used car . In both cases people transfer ownership of something that already exists , they do not produce something new .

b) The sale of 100,000 CD's sold at the price of $15.00 is included in the GDP and the amount of $ 1,500,000 is added to the GDP as a onsumer expenditure .

C) The purchase of Lexus car for $ 25,000 and the purchase of special tires for $ 1600 is included in the GDP as an increase in consumption .

d) Fixing a friend's car saving him $300.00 and friend painting house saving $ 400 is to be included in the GDP because both these transaction results in increase in the investment .

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