Question

1. For the following events, what is the likely effect on GDP?
   a. Cigarettes are made illegal.
   b. A man who is married to a tax accountant gets a divorce.
   c. Goodyear sells more tires to consumers.
   d. Goodyear sells more tires to Ford to install on Ford-150 pickup trucks.
   e. The price of Apple stock rises to over $600 per share.
   f. Your grandmother knits you a sweater.
   g. You buy a sweater from Bloomingdale’s.

Answer 1

1.

The GDP can be defined the market value of all goods and services which are produced in the domestic territory of the country in the current financial years.

GDP=C+I+G+X-M

a.

Since Cigarettes are made illegal and its production is not reported in the economy, therefore it will not add in the GDP. Hence it will not affect GDP.

b.

Since a man who is married to a tax accountant gets a divorce but it does not affect the production of goods and services in the economy. Hence it will not affect the GDP.

c.

Since Goodyear sells more tires to consumers, therefore the consumption increases, therefore the value of GDP will also increase.

d.

Goodyear sells more tires to Ford to install on Ford-150 pickup trucks, Since this activity is an example of an intermediate prouduction and this activity is added in the final value of the pick up trucks. Hence it will not affect the GDP because it is counted in the final value of pickup trucks.

e.

The price of Apple stock rises to over $600 per share. Since this activity does not create any goods and services. So this will not be added in the GDP. Hence it will not affect the GDP.

f.

Your grandmother knits you a sweater. Since the production is done for the self-consumption. Hence it will not affect the GDP.

g. You buy a sweater from Bloomingdale’s. Since this is part of the consumption. Hence it will increase the GPD.

Hence it will affect the GDP.