Final answer:
The commission from the house sale contributes to GDP as it is a service produced, while the sale price itself is not a direct contribution to GDP. The GDP deflator is essential in adjusting for inflation to measure real economic growth. Additionally, an increase in GDP does not always correlate with improvements in the standard of living.
Step-by-step explanation:
When Norma sold her house for $308,000 and paid a $17,000 commission to her real estate agent, this transaction would contribute to an increase in the Gross Domestic Product (GDP). This is because GDP measures the total value of all goods and services produced over a specific time period within a country. The commission paid to the real estate agent is considered part of the services produced and is therefore included in the GDP calculation.
However, the overall sale price of the house would not directly affect GDP because it is considered a transfer of ownership and not the production of a new good or service. In other words, only the agent's commission is a new service contributing to GDP. The rise in property values, as discussed in the real estate examples involving Freda and Ben, would not register as a GDP increase until a transaction occurs involving a new or additional service. Similarly, the use of a GDP deflator is critical in understanding actual production increases as it helps to remove the effects of inflation and provides a more accurate measure of economic growth.
It's also worth noting that while an increase in GDP may indicate economic growth, it doesn't automatically imply an improvement in standard of living. Factors such as environmental externalities or social costs may mean that not all increases in GDP are beneficial to society.