Question

In early 2010 Molly paid $200,000 for a house built in 2000. She spent $30,000 on new materials to remodel the house. Although Molly lived in the house after she remodeled it, its rental value rose. Which of the following contributed to real GDP in 2010?

a) the price of the house, the cost of remodeling materials, the increase in rental value
b) the price of the house and the cost of remodeling materials, but not the increase in rental value
c) the costs of the remodeling materials and the increase in rent, but not the price of the house
d) None of the above are correct.

Answer 1

c) the costs of the remodeling materials and the increase in rent, but not the price of the house

Step-by-step explanation:

As for the information provided, she buys the house for $200,000 and then expenses for re-modelling the house, that is $30,000.

After which the rent increases and accordingly there is an increase in real GDP.

Note that the purchase of house is purchase of asset, which will not generate revenue, but applying re-modelling expense and the rent are revenue in nature and not capital. This therefore, contributes in real GDP.