Question

Explain for each if the following would affect the size of real GDP? A. Consumer purchase of a new car for personal use. B. Government purchase of a new car. C. Business purchase of a new car for a delivery vehicle. D. Consumer purchase of a rare painting.

P.s it could be only one of the frictional, structural and cyclical unemployment. Thank you.

Answer 1

Expenditure method - The most widely used method to calculate GDP is expenditure method. This method aims to collect data on expenditure side by adding household spending, government spending, business investment and Net exports.

GDP by Expenditure Method = Household consumption + Gross Business Investment + Government Spending + Net Exports (Export - Import)

a. Consumer puchase of a new car for personal use will increase GDP & will be recorded in "Household consumption"

b. Government purchase of a new car will increase GDP, and will be recorded in "Government Spending".

c.Business pruchase of new car will also increase Real GDP, as it is "investment " part of the GDP.

d. Consumer purchase of Rare painting will not affect GDP, as it is not recorded in GDP at all. Transactions that do not add productivity in the economy are excluded from GDP. here if painting purchased from the painter at first time , then only it would be included in GDP.