Question

1. Consider the following transactions involving the nation of Foxystan. For each of the following, determine which transaction would be added to the current GDP of Foxystan. Explain why or why not.

a. A consumer in Foxystan pays the rent to the owner of his apartment complex.

b. A firm in Foxystan pays wages to a consultant located in the neighboring country of Franklandia.

c. The government of Foxystan has built a new national museum.

d. A consumer in Foxystan sells his used car to a consumer who lives in neighboring Franklandia.

e. A firm in Foxystan pays interest on repayment of a loan from the First Bank of Foxystan.

Answer 1

The GDP can be defined as the total market value of final goods and services produced in the given fiscal year in the domestic territory of the country.

a. Since A consumer in Foxystan pays the rent to the owner of his apartment complex, it means the economic activity has been taken place in the domestic territory of the  Foxystan. Hence it will be included in the GDP of Foxystan.

b.

Since A firm in Foxystan pays wages to a consultant located in the neighboring country of Franklandia. Since the economic activity has been taken place outside of the Foxytan and wages are going outside of the Foxystan. Hence

this will not be included in the GDP of Foxystan.

c. Since the government of Foxystan has built a new national museum, so it means the economic activity has taken place in the Domestic territory of the Foxystan. Hence it will be included in the GDP of Foxystan.

d.

Since the selling of the used goods is not included in the GDP of the country. Hence when A consumer in Foxystan sells his used car to a consumer who lives in neighboring Franklandia. So it will not be included in the GDP of Foxystan.

e.

When A firm in Foxystan pays interest on repayment of a loan from the First Bank of Foxystan, so in this case the goods and services have been produced in the domestic territory of the Foxystan. Hence interest payment will be included in the GDP of the Foxystan.