Question

3. Which of the following transactions would be included in GDP for the third and fourth quarter of 2016?
(x) In October 2016, Archie sells his collection of old baseball cards to a baseball card dealer.
(y) In November 2016, Barry eats potatoes that he harvested from his backyard garden in September 2016.
(z) In December 2016, Cathy visits her dentist to take care of a bothersome toothache. She pays for the visit in January 2017.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

4. Which of the following statements is (are) correct?

(x) According to the macroeconomist, U.S. investment increases when Darla, a U.S. resident buys a newly issued stock in a U.S. corporation
(y) Purchases of newly constructed homes, changes in inventory and the purchase of newly produced capital goods such as industrial equipment are included in the investment component of GDP.
(z) If a Canadian firm builds a new production facility in the state of New York, then it would be reflected as an increase in investment in the U.S. and GDP in the U.S. would be higher as a result.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

5. Suppose that a country produces 60,000 units of good F which sells at $3 a unit and 120,000 units of good G which sells at $2 per unit. Both of the goods are final goods. The production of good F contributes ________ as much to this country’s GDP as the production of good G.
A. 1/2 times
B. 3/4 times
C. 3/2 times
D. 4/3 times
E. None of the above

Answer 1

3. E. (z) only

In the case of (x): Archie sells his collection of old baseball cards to a baseball card dealer; no new goods and services are being produced so no addition to GDP.

In the case of (y): Barry eats potatoes that he harvested from his backyard garden in September 2016; this is production for own consumption and not for trade or sell in the market, therefore, this is not included in the GDP calculation.

In the case of (z): Cathy visits her dentist to take care of a bothersome toothache. She pays for the visit in January 2017; the service of a dentist is being purchased by the consumer, so this is included in GDP calculation.  

4. D. (y) and (z) only

In the case of (y): Purchases of newly constructed homes, changes in inventory and the purchase of newly produced capital goods such as industrial equipment are included in the investment component of GDP. These activities are a part of the residential and non-residential investment components in GDP calculation.  

In the case of (z): (z) If a Canadian firm builds a new production facility in the state of New York, then it would be reflected as an increase in investment in the U.S. and GDP in the U.S. would be higher as a result. It is a part of the non-residential investment and since this is a physical investment in the domestic country (US) it is a part of the Gross DOMESTIC Product.

5. B. 3/4 times

Contribution on part of good F = quantity produced * price per unit of output = 60000 * 3 = 180000

Contribution on part of good G = quantity produced * price per unit of output = 120000 * 2 = 240000

180000/240000 = 3/4