Question

Q.1: What components of GDP (if any) would each of the following transactions affect? Explain your answer.                                                                                                                     

1. Uncle John buys a new house from a local builder.
2. You buy new jeans from Salsa store.
3. Toyota purchased a new warehouse in Japan to manufacture more cars in the region.
4. California hires workers to repave Highway 101.
5. The country is using MSC for trading to import and export products.

Answer 1

Q.1: What components of GDP (if any) would each of the following transactions affect? Explain your answer.

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a. Uncle John buys a new house from a local builder.

New house purchases are included under the "Investment expenditure" component of GDP. This transaction affects GDP only for a new house, and not for resale of old house.

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b. You buy new jeans from Salsa store.

This is a "Consumption expenditure" component of GDP. The new jeans is a consumer product, being purchased by an individual, for personal consumption.

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c. Toyota purchased a new warehouse in Japan to manufacture more cars in the region.

This will be included under "Investment expenditure" in Japan's GDP. However for USA's GDP, it has no effect.

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d. California hires workers to repave Highway 101.

This will be included under "Government expenditure" for USA's GDP. Hiring of workers and associated costs are government expenditures to improve the nation's infrastructure.

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e. The country is using MSC for trading to import and export products.

For imports and exports, the cumulative term used is "Net Exports", which is "exports minus imports". Thus, only the net value thus derived will be added to GDP, if such trade takes place. Any commissions, taxes or duties paid to a foreign country will not be included in the home country's GDP.