Chapter 3R, Problem 4CTQ

a)

To determine

The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.

Explanation of Solution

The national income (GDP) is the sum of consumption spending (C), investment spending (I), government expenditure (G), and net exports.

Net export = Export (X) − Import (IM)

GDP = C + I + G + X − IM

Thus, the prize money won in country E by the U.S. star: in

Reason: Winning prize money in a foreign nation by the US star adds the value of consumer spending to the GDP of the country U.

Economics Concept Introduction

The calculation of GDP includes domestically produced final goods and services such as capital goods, change in inventory, and newly constructed structures in financial years. 

It doesn’t include intermediate goods and services (to avoid the double entry problem), used goods, stocks and bonds, foreign-produced goods and services, and other items.

b)

To determine

The question requires us to categorize the given item which is included and excluded in the calculation of country U GDP in the relevant year.

Explanation of Solution

The used toboggan purchased by a person on eBay: out

Reason: GDP measurement doesn’t include used goods.

c)

To determine

The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.

Explanation of Solution

The whopper a person bought for lunch: in

Reason: Buying the whopper is considered consumption spending and it is part of GDP.

d)

To determine

The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.

Explanation of Solution

The massage a person bought for his/her dad: in

Reason: Buying massage is part of consumption spending and thus, GDP includes it.

e)

To determine

The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.

Explanation of Solution

The painting a person bought for his/her mother: in Reason: Buying painting is part of consumption spending and thus, GDP includes it.

f)

To determine

The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.

Explanation of Solution

Coffee beans that didn’t sell in the following years by Starbucks: out Reason: the remaining coffee beans would be considered inventories and thus, is not part of this year's GDP.