Question

3. For each item explain the following: (1) Whether or not the transaction is ever included in the calculation of US GDP. If it is not, explain whether it should be, but for some reason can’t, or whether it should not be. (2) If included in the US GDP calculation, explain whether it is included in the final goods and services method, the value added method, or both. (1 point each)

a) Social security payments received by a retired factory worker. (1 point)

b) BMW (German Car Company) purchases tires produced in Ohio for its cars. (2 points)

c) Ford motor company buying tires produced in Ohio to put on its new cars. (1 point)

d) Paying someone to clean your house. (1 point)

e) You mow your own lawn. (2 points)

Answer 1

a.. )

it is included in calculation of GDP. Such payments are made to workers since workers had provided his services when he was in job. Thus, there is two way flow of services and money.

It is included in income as wage and salary.

b)

it constitutes the export of good from domestic territory. Thus , it is included in GDP calculation. It is part of expenditure method of GDP calculation.

c)

it does not form part of GDP calculation. Ford is US domestic company and it uses tires as intermediary product.

d)

It is also part of GDP. Here we are making direct payment to someone who cleans our home.

e)

it is not included in GDP calculation. It difficult to calculate the real cost of mowing own lawn. Thus, it is not included in GDP calculation.