Chapter P5, Problem 1KC

To determine

 The items included in the calculation of the GDP.

Answer to Problem 1KC

Option 'e' is correct.

Explanation of Solution

The Gross Domestic Product is the sum total of the money values of all the goods and services produced within the political boundary of an economy within a specific period of time which is usually one financial year. The money value of all the final goods and services that are produced within the economy will be summated in order to calculate the GDP.

Option (e):

The GDP calculation includes the monetary value of all the final goods and services produced within the economy in the financial year only. Since the value of the used car is already included in the GDP calculation of the year in which it was produced, it will not go for double entry. The Apple stocks are not considered as the services and are also not included. The homemaker's services are also not included in the GDP calculation and also the same idea of the used car is applied on the Gulf war military surplus sale which means none of the given is included in the GDP calculation and that means option 'e' is correct.

Option (a):

The current exchanges in the stocks and bonds, the government security and welfare payments etc are not included in the GDP calculations. This means that the purchase of 100 shares of Apple stock is a financial asset and not a newly produced good. This means that the transaction is not included in the GDP calculation and that makes option 'a' incorrect.

Option (b):

One product will be counted for only once in the GDP calculation and that means when there is a resale of the product, it will not be accounted for the GDP calculations. Thus, the value of the car will be included in the year in which it was produced and that means the resale will not be accounted for GDP and therefore, option 'b' is incorrect.

Option (c):

The Homemaker's services are not easily valued because they do more than the accountable work of the maid. They do such works without any remuneration and that means the work is an unpaid and nonmarket transaction which makes the inclusion of the homemaker's services not possible in the GDP calculation and thus are not included. This means that the option 'c' is also incorrect.

Option (d):

Since gulf war military surplus is not produced in the year and is already accounted for the year in which they were produced, just like the sale of the used car, it will not be included in the GDP calculation. Thus, option 'd' is incorrect.

Economics Concept Introduction

Gross Domestic Product:  The GDP is the sum total of the money value of all the final goods and services produced within the political boundary of a country within the financial year.