Chapter 11, Problem 1P

To determine

(a)

To explain:

The meaning of Gross Domestic Product.

Explanation of Solution

The GDP refers to the price value of all finished goods and services produced within a country in a particular financial year. Personal consumption, net exports, government spending, and business investments are the four components of gross domestic product. Generally, the value of GDP is calculated for an year.

Mathematically, GDP is expressed as,

  $\text{GDP}=\text{C}+\text{I}+\text{G}+\text{NX}$

Where,

C is Consumption,

I is Investment,

G is Government spending and

NX is Net exports.

Economics Concept Introduction

Gross Domestic Product:

The value calculated by a country's economic activities is referred as the gross domestic product of that country.

To determine

(b)

To explain:

The reason behind the final value of goods and services only is measured by the GDP.

Answer to Problem 1P

The reason gross domestic product measures only the final value of goods and services is that if the raw materials and intermediate goods are counted, it will lead to the issue of double counting.

Explanation of Solution

If there is inclusion of raw materials of goods and services, it would result in double counting.So,gross domestic product measures only the final value of thegoods and services.

Economics Concept Introduction

Gross Domestic Product:

It refers to the price value of all finished goods and services produced within a country in a particular financial year. Personal consumption, net exports, government spending, and business investments are the four components of gross domestic product.

To determine

(c)

To explain:

The reason behind the value of goods and services produced within acountry is only measured by GDP.

Answer to Problem 1P

Gross domestic product measures only the value of goods and services within a country as the production is measured at the domestic level.

Explanation of Solution

When an individual measures production at a domestic stage,it includes the ultimate price of goods and services manufactured inside the domestic area of a nation. Thus, Gross Domestic Product measures only the price of goods and services within the nation.

Economics Concept Introduction

Gross Domestic Product:

It refers to the price value of all finished goods and services produced within a country in a particular financial year. Personal consumption, net exports, government spending, and business investments are the four components of gross domestic product.

To determine

(d)

To explain:

The way treatment is done by the Gross Domestic Product to the sales of used goods.

Answer to Problem 1P

The sales of used goods is not included in the Gross Domestic Product. This is beacusetheseare already included in the Gross Domestic Product at the time of manufacturing and it is not the final production of the manufacturer.

Explanation of Solution

As the sales of used goods are included in the gross domestic product at the time of manufacturing, counting its resale will lead to double counting. Hence, the sale of used goods is not included in the GDP.

Economics Concept Introduction

Gross Domestic Product:

It refers to the price value of all finished goods and services produced within a country in a particular financial year. Personal consumption, net exports, government spending, and business investments are the four components of gross domestic product.

To determine

(e)

To explain:

The way sales of corporate stock is treated by the gross domestic product.

Answer to Problem 1P

The sales of corporate stock is not included in the gross domestic product.

Explanation of Solution

Since the sales of corporate stock from one stockholder to another is only the change in the ownership and does not refers to any change to economic activity or production.So, it is not included in the Gross Domestic Product.

Economics Concept Introduction

Gross Domestic Product:

It refers to the price value of all finished goods and services produced within a country in a particular financial year. Personal consumption, net exports, government spending, and business investments are the four components of gross domestic product.