What components of GDP, if any, would each of the following transactions affect? Explain. a) Jahzara spends $300 to buy her husband dinner at the finest restaurant in Boston. b) Nylah spends $1,200 on a new smartphone to use in her publishing business. The smartphone was built in China. c) Joseph spends $800 on a tablet to use in his editing business. He got last year's model on sale for a great price from a local manufacturer. d) GM builds $500 million worth of cars, but consumers only buy $470 million worth of them. e) The Federal Government sends your Grandmother a Social Security Check.
What components of GDP, if any, would each of the following transactions affect? Explain. a) Jahzara spends $300 to buy her husband dinner at the finest restaurant in Boston. b) Nylah spends $1,200 on a new smartphone to use in her publishing business. The smartphone was built in China. c) Joseph spends $800 on a tablet to use in his editing business. He got last year's model on sale for a great price from a local manufacturer. d) GM builds $500 million worth of cars, but consumers only buy $470 million worth of them. e) The Federal Government sends your Grandmother a Social Security Check.
Chapter4: The Aggregate Economy
Section: Chapter Questions
Problem 6E
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**GDP Components Analysis**
To understand how various transactions impact the components of Gross Domestic Product (GDP), consider the following scenarios:
a) Jahzara spends $300 to buy her husband dinner at the finest restaurant in Boston.
- **Impact on GDP:** This transaction affects the Consumption (C) component of GDP as it involves spending on a service within the economy.
b) Nylah spends $1,200 on a new smartphone to use in her publishing business. The smartphone was built in China.
- **Impact on GDP:** This expenditure affects the Net Exports (NX) component of GDP. While the purchase is for Investment (I), as it is used for business, the smartphone being an import subtracts from GDP.
c) Joseph spends $800 on a tablet to use in his editing business. He got last year’s model on sale for a great price from a local manufacturer.
- **Impact on GDP:** This transaction affects the Investment (I) component. Despite being a prior year model, it is a domestic product and contributes to business investment, thus influencing GDP.
d) GM builds $500 million worth of cars, but consumers only buy $470 million worth of them.
- **Impact on GDP:** This situation involves the Investment (I) and Consumption (C) components. The total production adds to GDP under Investment. The $30 million worth remaining as unsold contributes to Inventory Investment, part of the Investment component.
e) The Federal Government sends your Grandmother a Social Security Check.
- **Impact on GDP:** Such transfer payments do not directly count towards GDP, as they are not payments for goods or services. They are redistribution of money, lacking impact on overall production.
Understanding these scenarios helps in recognizing how various economic activities influence national output measurement.
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