Quiz 7: Taking the Nations Economic Pulse

Business

(a) This activity will not affect this year's GDP because sale or purchase of second hand goods is not included in the current year's GDP. (b) This activity will increase the GDP by $500 as expenditure on final goods and services is included in the current year's GDP. (c) This activity will not affect this year's GDP because household production of goods and services is not counted in GDP. (d) This activity will be included in the GDP as it involves market transaction or in other words market production of service has taken place. (e) Purchase of shares will not affect this year's GDP. However, commission paid for purchase of shares indicates the production of service in current year and would be included in the GDP. Thus, GDP will increase by amount of sales commission. (f) This activity will not affect this year's GDP because current year's GDP includes production undertaken in current year however in the given case only natural gas is discovered but no production has taken place as yet. (g) This activity will not impact the GDP of current year in any way because destruction caused by natural disasters like hurricane or earthquakes are not counted in GDP. (h) This activity will not impact the current year's GDP in any way because only final value of goods and services produced within the domestic territory of a country are included in GDP. In the given case, even though, an American has produced the service but this production has taken place outside the domestic territory of United States so it will not be counted in GDP of United States.

Given, Increase in nominal GDP = 6 percent Increase in GDP deflator = 4 percent Using the following formula: img Change (increase) in real GDP = img Change (increase) in real GDP = 6 percent - 4 percent Change (increase) in real GDP = 2 percent img Therefore, Real GDP has increased by 2 percent.

The sale of furniture will not influence the GDP as only goods produced and traded during the year affects the GDP of that year and since these are goods manufactured in the previous year and have already been counted in previous year's GDP so they will not be counted in this year's GDP. This sale will bring an increase in household consumption expenditure but also bring a simultaneous decrease in inventory investment as well and thus would not have any impact on the GDP as such.

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