For each of the following items, identify whether it is included or excluded in

Question

For each of the following items, identify whether it is included or excluded in calculating this year's GDP. In each instance, briefly explain why. (Note: since you are not responsible in this course for "Measures of Income" section in Chapter 5, none of your answers should include this material.)

(a) An auto mechanic who fixes his own car at home

(b) Cash received from selling a corporate bond (excluding any broker commission, etc.)

(c) Spending by a city government on a waste-treatment plant

(d) The pleasure that people obtain from working at jobs they like (e) A veteran's payment made to a retired military officer

Explanation / Answer

GDP is the total market value of all final goods and services produced in the economy in one year.

a) An auto mechanic who fixes his own car at home is not included in calculating GDP because personal work is not included in calculation of GDP. It is not a market transaction.

b) Cash recieved from selling a corporate bond is not included in calculating GDP because it is a purely financial transaction. Pure financial transactions like selling or buying bonds is not included in calculation of GDP.

c) Spending by a city government on a waste-treatment plant is included in calculation of GDP because it is part of Government Purchases and Expenditure.

d) The pleasure that people obtain from working at jobs they like is not included in calculation of GDP because it is difficult to calculate and does not have market value.

e) A veteran's payment made to a retired military officer is not included in calculation of GDP because it is a public transfer payment. Public transfer payment like veteran's payment, social security payment are not included in calculation of GDP.

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.