Question

how am i not thinking like an economist?

i bought a new house this year, but that house (which was new to me) was originally built in the year 1908. i would classify this as a consumption expenditure for this years GDP. Explain why this is not correct by describing what is and what is not included in this years GDP

Answer 1

Buying a new house which is built in the year 1908 will not be included in current year's GDP because that have already been included in the year of 1908 as a investment Expenditure.

No	Not Included in GDP	reason
1	Transfer income and payments like Scholorships, Old age pensions, unemployment allowance, gifts etc	They are not connected with any productive activity and there is no value addition.
2	Compulsory transfer payments like wealth tax, death duty, Capital gain tax, indirect taxes like custom duty, sales tax etc	they are transfer payments and the government does not make any promise of providing services in return
3	Sales or purchase of financial asstes like shares, bonds , debentures, etc	Such transactions do not contribute to current flow of goods and services. These financial assets are mere paper claims and involve a change of title only.
4	Windfall gains like winning from lottery, horse race, contests etc	There is no productive activity involved with windfall gains
5	Non-market transactions like domestic services, rendered by a housewife, kitchen gardening, a parent teahing his child or leisure time activity like painting a house	It is difficult to ascertain their market values and such services are not rendered for the purpose of earning income
6	Intermediate consumption expenditures like the purchase of raw material by a firm, vegetables purchase by a restaurant, advertisement expenses of a production unit etc	Such expenditures are already included in the final expenditures
7	A capital loss like the destruction of building, machinery, etc by an earthquake	They do not affect the national product directly
8	Capital gains like profit due to increase in price of land , building, shares or income from the sale of second-hand goods etc	They do not add to the flow of goods ad services in the economy
9	National Debt interest or interest paid by the household to the commercial banks	Interest paid on the loans taken for consumption purposes is not included
10	Inter-firm payments like payments of interest or dividend from one firm to another	It has already been included in the profit of the firm which makes the payment of interest/dividend to other firm

No	Included in GDP	reason
1	Brokers commission on the sale or purchase of second-hand goods or financial assets	Services rendered by brokers are productive
2	Services provided by the owner of production units like imputed rents of owner-occupied house, interest on own capital, production for self-consumption etc	They contribute to the current output of goods and services. imputed values will be included in the national income as they are related to the productive activities
3	Capital Formation or investment like purchase of machinery by the firm, construction of the new house, expenditure on additional assets, addition to the srtock etc	As they are the part of the Gross domestic capital formation
4	Payment of bonus, retirement pension, contribution to the provident fund by employer, free clothes given to workers, subsidizes lunch serves to workers, free medical facilities provided to employees, house rent allowance, rent-free home given by the employer.	These are the part of compensation given to employees by the employers for their productive services
5	Payment of bus fares by household, examination fees paid by students, durable goods like TV Scooter purchased by a household, insurance premium paid by employees, etc	As they are a part of Private final consumption expenditure
6	Profits earned by home country from its branches abroad, Wages received by Employees working in foreign embassies, rent received by a resident on their building rented out to foreigners	As they are a part of Factor income from abroad
7	Free Services by the government like dispensaries, education, government expenditure on street lightening	They are a part of the Government final consumption expenditure
8	Expenditure incurred by a foreign tourist in a country	As the exported goods are produced within the country's domestic territory, they are included for determining the output of the economy
9	Interest on loans paid by commercial banks	Interest is paid on loans taken by commercial bank for productive purposes