Question

Joe sells the house he has lived in for 10 years to the Smith family for $300,000. He receives $50,000 more than his original purchase price 10 years ago. Joe pays his real estate agent a 5% sales commission. This transaction will increase GDP by:

Answer 1

Addition to GDP is $15,000

Step-by-step explanation:

Gross domestic product is defined as the total goods and services produced in an economy in a given period. For example total production for a period of one year is considered.

Joe sells the house he has been living in for 10 years. GDP does not include resale of property as addition to GDP because when the house was bought 10 years ago it was recognised as GDP for that year. Recognising repurchase will result in duplication of records.

The addition to GDP in this transaction is the commission paid to the real estate agent, as it is service rendered within this year.

The commission is 5% of sales.

Addition to GDP = 0.05* $300,000

Addition to GDP= $15,000