Question

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion?

a. GDP necessarily increases
b. GDP necessarily decreases
c. GDP is unaffected because neither the rent nor the estimate of the value owner- occupied housing services (also known as imputed rent) is included in GDP
d. GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services (also known as imputed rent).

Answer 1

The correct answer is option d.

Step-by-step explanation:

An apartment complex converts to a condominium so that the former renters are now owners of their housing units.

A current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid.

This will cause no change in GDP. This is because earlier rent was being paid which was included in GDP. But now that the former renters are the owners. The rent is replaced by the imputed rent or the value of condominium owners' housing services. Since the imputed rent is the same as the rent paid earlier. The GDP will remain unaffected.