Question

Assume that a car-sharing service that allows people to rent cars for short periods of time, becomes so popular that people decide to give up ownership of their own cars. If this transition from car ownership to car rental occurred, then measured GDP would rise. Is the following statement true, false or uncertain? Explain.  

Answer 1

Answer: The statement is true.

If the transition from car ownership to car rental occurs, then it will increase the GDP.

The car rental increases the income of the person who rents the car. The income census method of measuring GDP includes the income of salaried and self-employed people, profits of the business sector, interest income, and rental income of property holder. Now, as the income of the person who rents the car increases, it will increase the total GDP. Again, a part of the rise in income increases the expenditure either through consumption expenditure or through investment expenditure. As a result if we measure the GDP through expenditure method (C+I+G+X-M), the increase in C and/or I will increase the GDP.So, both from the income census method, and expenditure method, the GDP rises due to the transition from car ownership to car rental.

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