Question

Colonel Hogwash purchases a Civil War-era mansion for $1,000,000. The broker's fee is 6%, which the colonel also pays, for a total expenditure of $1,060,000. According to the income approach, this transaction would be recorded as a

A. $60,000 increase in domestic value added by the brokerage service.
B. $60,000 increase in income received by the real estate broker.
C. $60,000 increase in residential investment.
D. $1,060,000 increase in residential investment.
E. $1,060,000 increase in domestic value added, for the value of the house.

Answer 1

The correct option is A). Colonel Hogwash's total expenditure of $1,060,000 for a mansion and broker's fee is recorded as a $60,000 increase in domestic value added by the brokerage service in national accounting.

Step-by-step explanation:

Colonel Hogwash purchases a Civil War-era mansion for $1,000,000, and the broker's fee is 6%, amounting to $60,000. So, the total expenditure becomes $1,060,000. According to the income approach in national accounting, this would be recorded as a $60,000 increase in domestic value added by the brokerage service because this fee is for the service the brokerage provided and not the purchase of the house itself. The increase in residential investment would be $1,000,000, which is the actual price of the mansion without the broker's fee included. Therefore, the correct answer to this question is A. $60,000 increase in domestic value added by the brokerage service.