Question

Louis always knits ten sweaters a year to give as birthday gifts to his nephews. One year, instead of giving the sweaters as gifts, he decides to sell them to a local store for $50 each. What is the effect on GDP?

A. GDP increases because Louis earned money by selling the sweaters.
B. GDP remains unchanged because the sweaters were not produced for final consumption.
C. GDP decreases because the sweaters were not given as gifts.
D. GDP increases because the sweaters have a monetary value when sold.

Answer 1

D

The GDP of a country tends to increase when the total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy. When this situation occurs, a country is said to have a trade surplus.

Answer 2

The effect on GDP is an increase because Louis earned money by selling the sweaters.

Step-by-step explanation:

The correct answer is A. GDP increases because Louis earned money by selling the sweaters.

GDP, or Gross Domestic Product, is a measure of the total value of goods and services produced within a country's borders over a specific period of time.

When Louis sells the sweaters to the local store, he earns money from the transaction. This transaction represents economic activity and contributes to the nation's GDP.

Therefore, the effect on GDP is an increase because Louis earned money by selling the sweaters.