List and explain 4 types of transactions that would not be included in GDP and why...

List and explain 4 types of transactions that would not be included in GDP and why they should be omitted.

Expert Solution

What is Gross Domestic Product?

Gross Domestic Product is the money worth/value of net flow of final and legal goods and services produced in domestic economy.

On close examination of the above-mentioned definition of GDP, following items are not included within the purview of Gross Domestic Product

1. Sale of Goods and services that are produced or provided outside the border of the United States of Amercia are not included in the Gross Domestic Product of the United States of Amercia.. For Instance, Car manufatured in Japan and sold in switzerland is not included in the Gross Domestic Product of the United States of America. Reason being, it has not been produced or sold in the USA.

2. Illegal Sale of goods and services in the United States of America is not included in the Gross Domestic Product of the United States of America. Production and sale of Laudanum shall not be included in the GDP of any year of the USA. Reason being GDP only includes legal income.

3. Transfer Payments in USA is not included in the GDP of the USA. For Instance pension of old employees is not included in the GDP of the United States of America. Reason being, Pension does not result in the production of goods and services.

4. Sale of already used goods in the United States of America is not included in the Gross Domestic Product of the United States of America. Reason being, it has already been included in the GDP of USA when it was sold for first time. For Instance, a Car was manufactured in the year 2000 in USA was produced and sold in 2001 for the first time for $10,000 and again sold in 2009 for the second time for $3000. Consequently, sale of the car ($10,000) for the first time is included in the GDP of year 2001. Sale of Car second time($3,000 in 2009) is not included in the GDP of 2009 of the United States of America. Reason being, it would be double counting.

5. Sale of Intermediate Goods used in production of final goods is not included in the GDP of the USA. For example, purchase and sale of steel used as raw material in car is not included in GDP as it shall be included in the value of sale of car. Reason being, it would be double counting.

Rahul Sunny answered 1 year ago

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