Chapter 19, Problem 2P

Which of the following are included in GDP calculations?

a. Cleaning services performed by Molly Maid Corporation

b. Lawn-mowing services performed by a neighborhood child

c. Drugs sold illegally on a local street comer

d. Prescription drugs manufactured in the United States and sold at a local pharmacy

e. A rug woven by hand in Turkey

f. Air pollution that diminishes the quality of the air you breathe

g. Toxic-waste cleanup performed by a local company

h. Car parts manufactured in the United States for a car assembled in Mexico

i. A purchase of 1,000 shares of IBM stock

j. Monthly Social Security payments received by a retiree

To determine

(a)

To explain:

Whether cleaning services can be included in the gross domestic product.

Answer to Problem 2P

Yes, the services by MM Corporation will be included in gross domestic product.

Explanation of Solution

The services by the MM Corporation is included in the gross domestic product because it has a significant effect in the country's economy.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(b)

To explain:

Whetherlawn-mowing services performed by a child of neighborhood can be included in the gross domestic product.

Answer to Problem 2P

No, lawn-mowing services performed by a child of neighborhood is not included in gross domestic product.

Explanation of Solution

The lawn-mowing services performed by child in neighborhood are not included in the gross domestic product because it does not have a significant effect on the country's economy. It does not account for any flow in the national income. Therefore, it will not be included in gross domestic product.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(c)

To explain:

Whether if drugs sold illegally on a local street corner can be included in gross domestic product.

Answer to Problem 2P

No, drugs sold illegally on a local street corner are not included in gross domestic product.

Explanation of Solution

The drugs sold illegally on a local street are not included in the gross domestic product because it is illegal and GDP does not count products and services that are producedillegally.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(d)

To explain:

Whether the prescribed drugs manufactured at the United States and sold at a local pharmacy can be included in the Gross Domestic Product.

Answer to Problem 2P

Yes, the prescribed drugs manufactured in the Unites States and sold at a local pharmacy are included in gross domestic product.

Explanation of Solution

The prescribed drugs manufactured inthe United States and sold at a local pharmacy are included in the gross domestic product. These drugs areproduced legally within the country, thus these drugs as a final product contribute to gross domestic product.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(e)

To explain:

Whether a hand-woven rug made in Turkey can be included in Gross Domestic Product.

Answer to Problem 2P

No, a hand-woven rug in Turkey cannot be included in Gross Domestic Product.

Explanation of Solution

The hand woven rug can be included in the gross domestic product because it has a significant effect on the country's economy.However, this hand woven rug was made in Turkey, this means it was produced outside the border of the country. Hence, this cannot be included in the GDP.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(f)

To explain:

Whether air pollution can be included in the gross domestic product.

Answer to Problem 2P

No, air pollution that diminishes the quality of air is not included in the gross domestic product.

Explanation of Solution

Air pollution that diminishes the quality of air is not included in the gross domestic product as it does not add any value to the national income. It is altogether a different concept of environment pollution.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(g)

To explain:

Whether the toxic waste cleanup performed by a local company is included in the Gross Domestic Product.

Answer to Problem 2P

Yes, the toxic waste cleanup performed by a local company is included in the Gross Domestic

Product.

Explanation of Solution

The toxic waste cleanup performed by a local company is included in the gross domestic productas it provides with a service, which generates income for the economy; thus, it will be included in the Gross Domestic Product.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(h)

To explain:

Whether the car parts manufactured in the United States for a car assembled in Mexico are included in Gross Domestic Product.

Answer to Problem 2P

Yes, the car parts manufactured in the United States for a car assembled in Mexico can be included in gross domestic product.

Explanation of Solution

The car parts manufactured in the United States for a car assembled in Mexico are included in the gross domestic product because it has a significant effect in the country's economy. It generates income through the assembly units that are present within the country. The car parts manufacturer are providing employment, generating revenue through the final product.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(i)

To explain:

Whether the purchase of shares of 1,000 IBM stock is included in gross domestic product.

Answer to Problem 2P

No, the purchase of 1,000 IBM stock is not included in the gross domestic product.

Explanation of Solution

The purchase of 1,000 IBM stock is not included in the gross domestic product because it does not have any significant effect on the country's economy as only the owner of stock is changing.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.

To determine

(j)

To explain:

Whether the monthly social security payments received by a retiree can be included in the gross domestic product.

Answer to Problem 2P

No, the monthly social security payment received by a retiree is not included in the gross domestic product.

Explanation of Solution

The monthly social security payment received by a retiree is not included in the gross domestic product because it does not have a significant effect in the country's economy and it will also lead to double counting.

Economics Concept Introduction

Gross Domestic Product:

The calculated value of a country's economic activity is known as gross domestic product. The price value of all finished goods and services manufactured within a country are included in deriving the value of GDP for a specific financial period.