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For each situation, identify if it is included in the U.S. GDP. Yes? Identify the category C, I, G, or X-M. No? Why not? Circle below:

Option 1: $10.00 for movie tickets
Option 2: $5M increase in defense expenditures
Option 3: $45 for a used economics textbook
Option 4: Ford makes a new $2M factory

1 Answer

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Final answer:

Movie tickets and a new factory by Ford fall under GDP categories consumption and investment, respectively, while an increase in defense expenditures is categorized under government spending. The resale of a used textbook is not included in GDP.

Step-by-step explanation:

When identifying whether transactions would be included in the U.S. GDP and under which category, we look at whether it fits within the components of GDP, which are represented by the formula C + I + G + (X-M), where C is consumption, I is investment, G is government spending, and X-M is net exports (exports minus imports).

Option 1: $10.00 for movie tickets is included in GDP under the consumption (C) category, as it is expenditure on a service that is part of the final goods and services consumed by households.

Option 2: $5M increase in defense expenditures is included under the government spending (G) category, as it represents government expenditure on goods and services.

Option 3: $45 for a used economics textbook is not included in GDP because it is not a transaction involving production or the creation of new goods but is instead the resale of an existing good.

Option 4: When Ford makes a new $2M factory, it is included under the investment (I) category, as it is an expense made for future production and constitutes the creation of new capital.

It is important to note that for each included transaction, one should mention the correct option in the final answer regarding its category in the GDP calculation.

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