Question

part a
is this counted as part of gdp?
which of the following are included and which are excluded in calculating gdp? explain your decisions.

1. a monthly check received by an economics student who has been granted a government scholarship
2. a farmers purchase of a new tractor
3. a plumbers purchase of a two - year - old used truck
4. cashing a u.s. government bond
5. the services of a mechanic in fixing the radiator on his own car
6. a social security check from the government to a retired store clerk
7. an increase in business inventories
8. the governments purchase of a new submarine for the navy
9. a barbers income from cutting hair
10. income received from the sale of nike stock

Explanation:

1. Government scholarship check:

• GDP measures the value of final goods and services produced. A government scholarship is a transfer payment (a one - way payment from the government without a corresponding production of a new good or service). Transfer payments are excluded from GDP.

1. Farmer's purchase of a new tractor:

• This is included in GDP. The tractor is a capital good (an investment good). Investment (I) is one of the components of GDP (GDP = C + I+ G + NX). When a farmer buys a new tractor, it represents an addition to the capital stock of the economy, which is part of investment spending.

1. Plumber's purchase of a two - year - old used truck:

• Used goods are excluded from GDP. GDP measures current production. The truck was already counted in GDP when it was originally produced (two years ago). Buying a used good is just a transfer of ownership and does not represent new production.

1. Cashing a U.S. government bond:

• Cashing a government bond is a financial transaction. It does not involve the production of a new good or service. Financial transactions (like buying and selling stocks, bonds) are excluded from GDP as they do not contribute to current production.

1. Mechanic fixing his own car:

• GDP includes market - based economic activities. When a mechanic fixes his own car, it is a non - market activity (no payment is made in a market - like setting). If he were to fix a customer's car and get paid, it would be included. But for his own car, it is excluded.

1. Social Security check to a retired store clerk:

• Social Security is a transfer payment. The government is transferring money to the retired clerk without any new production associated with that payment. Transfer payments are excluded from GDP.

1. Increase in business inventories:

• An increase in business inventories is included in GDP. Inventories are considered as investment (a form of production that is stored for future sale). If a firm produces a good and does not sell it immediately, that unsold good (increase in inventory) is counted as investment (part of GDP) in the current period.

1. Government's purchase of a new submarine:

• Government purchases (G) are a component of GDP. When the government buys a new submarine (a final good for government use, in this case for the Navy), it is included in GDP as part of government spending on goods and services.

1. Barber's income from cutting hair:

• The barber's service (cutting hair) is a final service. Services are included in GDP. The barber is providing a service in the market (customers pay for the haircut), so it is part of GDP.

1. Income from the sale of Nike stock:

• Stock sales are financial transactions. They do not represent the production of a new good or service. The company (Nike) may have used the proceeds from the initial stock sale (when the stock was first issued) for production, but the subsequent sale of the stock (secondary market transaction) is excluded from GDP.

Answer:

1. Excluded (transfer payment).
2. Included (investment).
3. Excluded (used good).
4. Excluded (financial transaction).
5. Excluded (non - market activity).
6. Excluded (transfer payment).
7. Included (investment - inventory).
8. Included (government purchase).
9. Included (service).
10. Excluded (financial transaction).