Question

Using the expenditure approach, state whether each of the following transactions would be directly counted in the U.S. Gross Domestic Product in the current year. (So we’re not counting the value of intermediate products that are indirectly counted when they become part of the value of the final products sold this year.) For those directly counted, indicate whether they count as C, I, G or NX, and indicate both the dollar amount of the contribution, and the sign (positive or negative). For those not included, explain why not in a few words.

Unless otherwise stated, assume that:

• All goods and services use only U.S.-produced inputs

• All households and firms are located in the U.S.,

• All activity occurs during the current year (i.e. the year during which GDP is being measured),

• None of these transactions are hidden from the Bureau of Economic Analysis.

1. Samsonite Corporation produces a suitcase which is purchased by a U.S. household for $300.

2. Steelcase Corporation produces a file cabinet which is purchased by a used car dealer to keep track of documents. The purchase price is $700.

3. NYC Tours, Inc. – a private firm that gives tours – earns $45,000 in revenue during the year taking foreign tourists on guided bus tours around Manhattan.

4. An NYU student buys a used car from another NYU student for $3,000.

5. An NYU student pays $20,000 during the year to rent a closet-sized studio apartment in the village from the apartment’s owner.

6. A new home is built and sold to a household for $400,000.

7. The Mayor of New York City earns a salary of $135,000.

8. A household purchases 100 shares of General Motors stock for $9,000, plus $25 in commissions paid to the stock brokerage company.

9. General Motors produces an automobile valued at $40,000, but doesn’t sell it during the year.

10. An unemployed auto worker receives $10,000 in unemployment insurance benefits. (Ignore any contribution to GDP from government workers in the unemployment insurance office.)

11. General Motors buys 1,000 reams of paper for $3,000. One-third of the paper is used by the company’s office workers during the year, the rest is not used until future years.

12. An NYU professor deposits $1,000 into her personal checking account at Citibank.

13. A household donates $500 worth of used clothing to a charity.

14. A U.S. clothing manufacturer buys $6,000 worth of cotton from a firm in Egypt, then uses it to manufacture shirts which are sold to U.S. households for $18,000. (Hint: two components of GDP are affected here)

Answer 1

a) Samsonite Corporation produces a suitcase which is purchased by a U.S. household for $300.

Category C. It is Consumption Expenditure ad the household had purchased it for final Consumption. Amount is $300.

b) Steelcase Corporation produces a file cabinet which is purchased by a used car dealer to keep track of documents. The purchase price is $700.

Category I. It is an Investment Expenditure made by car dealer.It firms part of furniture fixed assets and will be used by dealer to carry operations smoothly. Amount is $700.

c) NYC Tours, Inc. – a private firm that gives tours – earns $45,000 in revenue during the year taking foreign tourists on guided bus tours around Manhattan.

This will be part of GDP calculations under Income Approach method. It will not form part of GDP calculations under Expenditure Approach.

d) An NYU student buys a used car from another NYU student for $3,000

This will not form part of GDP using Expenditure Approach. It is a used car. The value of the car must have been included in the GDP of the year it was produced. Counting it again will result in double counting.

Note :It has been assumed all goods and services are produced and consumed in US, as given above.