Suppose you paint your house this year, using $200 of paint bought this year and saving...

Suppose you paint your house this year, using $200 of paint bought this year and saving $900 in labor that would have been paid to a painting company. How much does GDP increase this year?

a. $900, since paint is considered a durable good.

b. $200.

c. 1,100, since your labor value is imputed.

d. $0, since this is do-it-yourself activity.

Solutions

Expert Solution

GDP measures the value of the final goods and services produced in an economy during a given year.

However, GDP does not count the production and transactions which do not enter the market such as household production, subsistence farming etc.

In the given question, the paint that was bought for $200 entered the market and was traded in the market. Therefore, the value of the paint is counted in the GDP. However, the painting service that you took up for your own house did not enter the market and no transaction took place. Therefore, the value of the painting service is not counted in the GDP.

Ans: b. $200

Rahul Sunny answered 2 years ago

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