Answered: or $850,000. As part of the sale, Tom…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In 2022, Tom spent $70,000 renovating his house. In the same year, he sold his house to a couple from Bacchus Marsh for $850,000. As part of the sale, Tom paid $17,000 for real estate agent fee, $8,000 for advertising fee and $95,000 for capital gain tax.

Considering all of the above numbers, how much would GDP in 2022 increase by?

A) $850,000, which is how much Tom sold the house for

B) $95,000

C) $190,000

D) $0, GDP would be unchanged because the sale of this already established house is considered the sale of a second-hand good.

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

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