1. How do the following events affect GDP (i.e. raise, lower or no effect)? Brie
ID: 1098689 • Letter: 1
Question
1. How do the following events affect GDP (i.e. raise, lower or no effect)? Briefly explain your answers. (10 points)
a. A mother takes care of her child in her own home.
b. Mary buys a new car from a dealer for $20,000.
c. Dave sells Mary a used car for $7,000.
d. Dave sells his old car to a dealer for $6,000. The dealer fixes it and sells it for $8,000.
e. Joe, a US citizen, lives and works in Mexico.
f. John receives a paycheck from work.
g. Sarah receives a monthly social security check.
h. Jane mows her family
Explanation / Answer
1.
a. A mother takes care of her child in her own home: no change as there is no transaction of money involved.
b. Mary buys a new car from a dealer for $20,000: increases GDP as transaction of money is involved.
c. Dave sells Mary a used car for $7,000: no change since no new economic activity has taken place.
d. Dave sells his old car to a dealer for $6,000. The dealer fixes it and sells it for $8,000: increase since economic activity of $2000 has taken place.
e. Joe, a US citizen, lives and works in Mexico: no change as his income will not be counted in GDP.
f. John receives a paycheck from work:increases GDP since economic activity has taken place.
g. Sarah receives a monthly social security check: no change as transfer payments are not included. only money has been given, no economic activity has taken place.
h. Jane mows her family
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