Question

Why is it desirable for a country to have a large GDP? Give an example of something that would raise GDP and yet be undesirable. 6. What components of GDP (if any) would each of the following transactions affect? Explain. a. A family buys a new refrigerator. b. Aunt Jane buys a new house. c. Ford sells a Thunderbird from its inventory. d. You buy a pizza. e. Quebec repaves Highway 50. f. Your parents buy a bottle of French wine. g. Honda expands its factory in Alliston, Ontario.

Answer 1

1. GDP represents market value of all final goods and services produced in an economy in a given year.

It is always desirable for countries to have large GDP, as it shows their production power and makes them competent enough to trade in the world market and show their dominance in the form of high output.

One example that would raise GDP but would be undesirable is when pollution laws are eliminated in order to increase production. This would increase GDP but pollution would increase drastically, which would be undesirable.

2.

a. A family buys a new refrigerator: Consumption expenditure would increase

b. Aunt Jane buys a new house: Consumption expenditure would increase

c. Ford sells a Thunderbird from its inventory: Nothing takes place as no new production has taken place for sale

d. You buy a pizza: Private consumption expenditure would increase

e.Quebec repaves Highway 50: Nothing would be changed as no new activity is taking place

f. Your parents buy a bottle of French wine: Imports increase

g. Honda expands its factory in Alliston, Ontario:Private Business Investment increases