Question

Jim buys a new car in February 2020 for $35,000. The car had been produced in the U.S. in January 2020. However, because of some financial problems, he sells it back to the dealer for $20,000 in March 2020. The dealer then sells the same car to another buyer for $25,000 in April 2020. What dollar amount will the national income accountants include in the nominal GDP of 2020 as a result of these transactions.

Answer 1

Answer: $35,000

Step-by-step explanation:

Nominal GDP is the total amount of final goods and services produced in an economy over a period of time which is usually a year reflected in the current market prices of that year.

For GDP to be effective there are certain measures that are put in place. Such as the Avoidance of DOUBLE COUNTING. This is can be either when intermediate goods such as iron are included in GDP as well as the steel they made. This will overestimate GDP. It can also happen if the same good is sold over and over again as is the case in this scenario. In that case only the first sale in that year is taken into account.

For this reason, $35,000 is the amount to be included in the Nominal GDP. If any other figure is put in as well then Double Counting will occur.