Question

Determine whether each of the following items is included in this year’s U.S. GDP. If so, identify the component of GDP in which it belongs: C, I, G, or NX. Check one box in each row.

a. A Wisconsin business builds a new office building this year.

Included in GDP: ⧠ C ⧠ I ⧠ G ⧠ NX Not in GDP: ⧠

b. The state of Minnesota builds a new highway this year.

Included in GDP: ⧠ C ⧠ I ⧠ G ⧠ NX Not in GDP: ⧠

c. An Iowa farmer sells soybeans to a tofu producer in China this year.

Included in GDP: ⧠ C ⧠ I ⧠ G ⧠ NX Not in GDP: ⧠

d. A student rents an apartment in Eau Claire this year.

Included in GDP: ⧠ C ⧠ I ⧠ G ⧠ NX Not in GDP: ⧠

e. You buy a U.S. Treasury bond next week.

Included in GDP: ⧠ C ⧠ I ⧠ G ⧠ NX Not in GDP: ⧠

f. You buy a Mercedes Benz (built in Germany).

Included in GDP: ⧠ C ⧠ I ⧠ G ⧠ NX Not in GDP: ⧠

Answer 1

Answer A. A Wisconsin business builds a new office building this year - Included in Investments (I)

Explanation: The gross private domestic investment component of GDP will include the new office building as this segment of GDP includes both non-residential and residential structures.

Answer B. The state of Minnesota builds a new highway this year - Included in Government Spending (G)

Explanation: Since this is investment by the state to build a "new highway," it is included in government spending component of GDP that has "Federal" as well as "State and Local" spending components.

Answer C. An Iowa farmer sells soybeans to a tofu producer in China this year - Included in Next Exports (NE)

Explanation: This is the case of export of goods & services and is included in the net exports component of the GDP (Exports minus Imports).

Answer D. A student rents an apartment in Eau Claire this year - Included in Consumption (C)

Explanation: When considering the factor income method for determination of GDP, the rent income ins included in GDP consumption component. According to the BEA, the personal consumption expenditure includes the consumption of housing services and rent is an essential component of housing services.

Answer E. You buy a U.S. Treasury bond next week - Not Included in GDP

Explanation: When the government spends, it issues bonds and this is indirectly included in GDP through government spending expenditure. However, merely buying and selling of bonds has no impact on GDP as it is no actual production or consumption.

Answer F. You buy a Mercedes Benz (built in Germany) - Included in Net Exports (NE)

Explanation: Since the Mercedes is built outside the United States and bought by a citizen of United States, it is an import of goods & services. This is included in the net exports component of GDP (Exports minus imports).