Question

3. For the following events, what is the likely effect on GDP?

            a. Flavored vaping products are made illegal.

            b. A man who is married to a tax accountant gets a divorce.

            c. Goodyear sells more tires to consumers.

            d. Goodyear sells more tires to Ford to install on Ford-150 pickup trucks.

            e. The price of Apple stock rises to over $200 per share.

            f. Your grandmother knits you a sweater.

            g. You buy a sweater from Bloomingdale’s.

            h. You buy a second-hand sweater from the Salvation Army.

            i. Your grandmother gets a Social Security check each month.

4. Suppose that the economy of Cookieland produces nothing but sugar cookies. Sugar cookies are made with flour, milk, and processed sugar. The following activities were observed in 2016:

            A wheat farmer sold $400 of wheat to a miller.

            A miller sold $600 of flour to a baker.

            A dairy farmer sold $200 of milk to a baker.

            A sugar plantation sold $200 of cane sugar to a sugar processor.

            A sugar processor sold $400 of processed sugar to a baker.

            A baker sold $1600 of cookies to a grocer.

            A grocer sold $2000 of cookies to final consumers.

Given these events, calculate the GDP of Cookieland using

            a.   the final goods approach.

            b. the value-added approach.

Answer 1

(Question 3)

(a) Legalization of the good will increase GDP since consumption expenditure on the product will increase.

(b) A divorce will not add or destroy any economic value so GDP will not change.

(c) Increased in sale of tires to consumers will increase GDP since consumption expenditure on the product will increase.

(d) Increased in sale of tires to Ford will increase GDP since GDP doesn't include the value of intermediary goods (inputs).

(e) Increase in price of stock does not change GDP since transactions involving stocks or bonds are excluded from GDP.

(f) Sweater knit by Grandmother will not change GDP since GDP excludes non-market goods.

(g) Purchase of sweater from Bloomingdale is a marketed good which will increase GDP since consumption expenditure will increase.

(h) Purchase of second-hand sweater will not change GDP since GDP excludes used goods (to avoid double counting).

(i) Social security is a transfer payment which is excluded from GDP, so GDP does not change.

NOTE: As HOMEWORKLIB Answering Policy, 1st question has been answered.