Question

Macroeconomics Econ 231 Gross Domestic Product assignment ____________________________For each of the following scenarios determine whether or not it should be included in the U.S. GDP calculation. How much would each situation increase GDP by (you should be able to give me an exact number)? If a transaction does not count towards GDP give me an explanation on the definition requirement it does not satisfy and why. Unless otherwise stated, assume that all transactions are completed domestically, within a one year time period. Answer the remaining questions thoroughly, making sure to completely label any graphs used.

Each portion of an explanation should be a minimum of 5-6 sentences each.

a. Dave pays a State Certified Building Contractor $15,000 to build a garage.

b. Dave purchases $5,000 worth of materials from Menard’s and builds a garage that increases the value of his home by $15,000.

c. Dave builds a garage (valued at $15,000) out of lumber that he cut, dried and machined himself.

d. An RCC student purchases a refurbished iPad from somebody advertising on the college bulletin board.

e. $13 million dollars in cotton, grown in Arkansas that ultimately will be used in a T-shirt, is sold to a woving factory for processing.

f. You purchase a used economics textbook from the RCC bookstore this semester for $50.

g. You win $450 while gambling in Las Vegas.

h. The Detroit Tigers purchase an additional $4.7 million worth of Labatt Blue (manufactured and bottled in Toronto) to sell during this year’s Spring Training.

i. You buy a new Mercedes Benz (German produced automobile) from a Champaign, Illinois dealership for $55,000.

j. You volunteer at a retirement home, baking for senior citizens. You buy $100 worth of materials to use.

o Draw the two possible ways to show Economic Growth on the Aggregate Supply and Demand Curve (each method should be shown on a separate graph). What are the “side effects” that accompany Economic Growth on each graph; under what circumstances is each bad?

o Find the most recent calculation of GDP (the value, not the percentage). Provide the numeric answer along with an MLA or APA citation of the source you used. o What are the limitations to using GDP as a measurement of how efficiently an economy is growing? Identify two recent events that will likely distort how well the official measurement of Gross Domestic Product represents the standard of living. Explain how the event is considered, or not considered, in the measurement. The two events must be from within the last 3 months.

Answer 1

a). This should be included in GDP. Because the garage is being built in the current year and it should thus be included in current year's GDP. This increases the value of the GDP entirely by $15,000

b). Only $5000 will be added in the GDP because this is the real value of the material that is being used. Whereas an increase in the value of the house by $15,000 should not be included because it is just the market value and not the real increase in the commodity's value.

c) This will be included in the GDP only if Dave sells this Garage to a second party. This will be included as it will be added as the value of the service that Dave provides. However in this case, since Dave does not sell it, $15000 will not be included in GDP. Another reason could be that the material that he used is directly obtained from nature which he hasn't paid for, and hence this cannot be included in GDP.

d). Only the increased value of the refurbished IPad will be included in the GDP and not the whole value. This is because the original value of IPad had already been included in the year that it was purchased. Whereas, the increase in the value of old IPad due to refurbishment is only because of the services provided in the current year. Hence, only the difference between the depreciated value and the refurbished value of IPad should be included.

e). This should not be included in the GDP. This is because the value of the ultimate good, that is T-shirt, in this case, will be included in GDP and thus the price of every material that is used to make this T-shirt should not be added separately in order to calculate the GDP.