Question

In 2018, Grace
- bought a used car for her personal use for RM50,000;

- and spent RM8,000 on new car parts made in Malaysia.

For each of the two transactions above, explain how the components of GDP and the total GDP in 2018 are affected. What is the combined effect of these two transactions on Malaysian GDP in 2018?

Answer 1

Solution:

In the above question it has been said that Grace bought a used car for RM50,000 and spent RM8,000 on new car parts made in Malaysia. From these two transactions above, the components of GDP and the total GDP in 2018 are affected only by the second transaction, that is RM8,000. There will be no effect on the GDP by the car bought by Grace at RM50,000 because, it had been calculated earlier GDP in the year when it was manufactured and sold. As, this car is a second hand or we can say it is a used one its value will not be calculated in 2018 GDP.

Hence, there will be an increase in the Malaysian GDP by RM8,000 in 2018. Out of these two transactions, the car's value will not be calculated in the present GDP that is in 2018 and the value of new car parts will be calculated in the present GDP that is in 2018.