Question

Explain why the value of GDP in 2012 would or would not change as a result of each transaction described below: a. In 2012, the Smith family purchases a new house that was built in 2012. b. In 2012, the Jones family purchases a house that was built in 2001. c. In 2012, a construction company purchases windows to put in the Smith family home that was built in 2012. d. In 2012, Mr. Jones paints all of the rooms of the Jones family house purchased in 2009, using paint and supplies purchased in 2012. e. In 2012, Mr. Smith uses an online brokerage service to purchases shares of stock in a construction company.

Answer 1

a) GDP changes

b) GDP does not change

c) GDP does not change

d) GDP changes

e) GDP changes

Step-by-step explanation:

a) GDP in 2012 increases by the purchase price of the house because, is a newly produced good.

b) Transaction involving used goods are not included in GDP since, the house was built in 2001, GDP in 2012 won't change because the house was not newly built.

c) GDP in 2012 would not change directly because the windows are intermediate goods and not final goods.

d) GDP in 2012 would change by the purchase price of paints and supplies but not by the impicit value of the painting services provided by Mr Jone because, home production is not included in GDP.

e) Financial transactions do not represent the production of final goods and services and are not included in GDP. GDP in 2012 will only increase by the charge for using the online brokerage service but not by the amount of stock purchase.