Question

Indicate how each of the following will affect this year's GDP

a. You suffer $10,000 of damage when you wreck your automobile.

b. You win $10,000 in a state lottery.

c. You spend $5,100 in January for 100 shares of stock ($5,000 for the stock and $100 for the sales commission) and sell the stock in August for $8,200 ($8,000 for the stock and $200 for the sales commission).

d. You pay $500 for this month's rental of your apartment.

e. You are paid $300 for computer services provided to a client.

f. You receive $300 from your parents.

g. You get a raise from $8 to $10 per hour and simultaneously decide to reduce your hours worked from 20 to 16 per week.

h. You earn $4,000 working in Spain as an English instructor.

Answer 1

GDP counts the value of goods and services that are final in nature (produced for final consumption) and are bilateral (in return for services)

a. The amount of $10,000 of damage represents a damage to the wealth of the nation but not to the GDP. Hence GDP is unaffected.

b. The amount of $10,000 in a state lottery is a windfall gain and unilateral so it does not affect the GDP

c. Stocks are shares not included in GDP but commission does. Hence a total of $300 for the sales commission is added to GDP.

d. An amount of $500 for this month's rental of your apartment is added to the GDP as a service is rendered.

e. When you pay $300 for computer services, this also adds to the GDP.

f. An amount of $300 from your parents, is not received against any service so this is unilateral. No effect will be registered in the GDP

g. An increase in the wage rate from $8 to $10 per hour changes the earnings from 20*8 = $160 to 16*10 = $160 per week. Since wages are same, GDP remains unchanged.

h. Earning of $4,000 is added to GDP as you render a service against it.