Question

For each of the following transactions, explain briefly why they would or would not be counted in the GDP of the United States. In your explanation, point out what component(s) or element(s) of GDP change and why. a) German auto producer Daimler AG builds a van factory in South Carolina. b) You buy the latest Samsung Galaxy J2 cell phone produced at a factory in South Korea. c) You baby-sit for your uncle’s children and he gives you $25 for a job well done. d) US auto producer Ford builds a factory in Puebla, Mexico. e) You buy a fresh loaf of bread at your local bakery. f) A Chrysler dealership in Utah has 20 unsold new 2019 model cars at the end of 2019. g) You marry your accountant and (s)he then takes care of your tax returns for free.  

Answer 1

GDP includes all those items which are produced within the geographical boundary of a country. It also includes all those transactions which are done for some economic motive and monetary in nature.

It does not include transfer payments which are done for non economic motive like donations and it also does not include non monetary transaction.

a) German auto producer Daimler AG builds a van factory in South Carolina: It will include in US GDP because it takes place inside the geographical boundary. It will include as a gross domestic capital formation in expenditure method to calculate GDP.

b) You buy the latest Samsung Galaxy J2 cell phone produced at a factory in South Korea: It will not include in US GDP because it takes place Outside the geographical boundary of US.

c)  You baby-sit for your uncle’s children and he gives you $25 for a job well done: It is monetary transaction because we get payment for our services as a baby sitter so it will include in GDP as a Consumption expenditure in Expenditure method and as a wage for services in Income method.

d) US auto producer Ford builds a factory in Puebla, Mexico: It will not include in US GDP because it takes place Outside the geographical boundary of US.

e) You buy a fresh loaf of bread at your local bakery: It will include in GDP as Consumption expenditure in Expenditure method.

f) A Chrysler dealership in Utah has 20 unsold new 2019 model cars at the end of 2019: It will include in GDP of year 2019 as these cars are produced in the year 2019. It will include in GDP as change in stock in Value added method.

g) You marry your accountant and (s)he then takes care of your tax returns for free: It will not include in GDP because it is a non monetary transaction and non economic transaction.