Question

Using the Spending Approach, determine whether each of the following is Consumption, Investment, Government Purchases, Net Exports, or not included in GDP, and briefly explain why.

(a) A yoga studio purchases new yoga mats and straps.

(b) An individual purchases a new yoga mat and straps for their home practice.

(c) Someone receives a stimulus check from the government in the mail during COVID-19.

(d) A public high school purchases new textbooks for its students.

(e) A campus bookstore increases its inventory of textbooks.

(f) Your parents purchase their dream home, newly built by a local contractor.

(g)Your parents buy a vacation home from a friend who had owned that home for years.

(h)You order falafel from a Turkish food stand, here in the US.

Answer 1

A-. INVESTMENT - The purchase of the new equipments for the purpose of business comes under investment.

B - Consumption - As the spending is being done for the self use , and not for the business , it will be called consumption.

C - Not included - This spending of government does not result in production of goods and services and neither is the result of any productive service. Hence will not be included in GDP

D - Government spending- The public school comes under government , hence the spending on textbook will be added in GDP .

E - Investment - The investment has been done in inventory which is for the purpose of business.

F - Investment - As the property being bough is new , it will add to the value of GDP.

G - Not included - Since the value of the house has already been included at time it was newly contructed , it will not be included again in GDP.

H - Consumption - The falafal is domestically produced and consumed. Hence it will be included in GDP.