Question

Sally purchases a classic 1964 car she saw for sale on someone’s lawn. She then purchases some new parts and spends 120 hours refurbishing the car which she keeps. Which of the following is included in GDP? a)the amount she paid to buy the car b)the amount she paid to buy new parts c)the value of her time repairing the car d)All of the above are included

Answer 1

b) the amount she paid to buy new parts

Step-by-step explanation:

Gross domestic product (GDP) is the monetary value of goods and services produced in a country within a period of time usually a year.

The second hand car purchased by Sally has already been recognized in the GDP in the period it was first sold. To include the purchase cost again will amount to double counting. Therefore, the expenses that will be included in GDP is the value that has been added, that is, the amount she paid to buy new parts. We do not recognize the value of self service in GDP, therefore the 120 hours she spent refurbishing the car is not to be included.