Question

1.Evaluate whether the value of their goods will be included in GDP calculations.

Explain briefly. (15 Points)

a) Corn planted by the consumer in his garden

b) Apple sold by the market to the organization

c) The onion sold by the farmer to the greengrocer

d) Red pepper in tomato paste made in the factory

e) The flour sold by the grocery store in the menu

f) The shirt sewed by the consume

2.While all other factors are constant, in the money market of the following applications, balance interest rate and

how and by which mechanisms will affect aggregate demand (investment and consumption expenditures)

explain reasonably. (30 Points)

a) Widespread practice of paying by credit card in taxis

b) Central Bank decreasing the required (legal) provision ratio

c) Central Bank selling bonds in the market through open market transactions

Answer 1

a) This will not be included in GDP. The corn planted will be included only if it is sold in the market.Only goods and services that are bought and sold in markets count in GDP, even though there may be a lot of other work being done and output being created.

b) This will be included in GDP. As it is a final good which is sold in the market to the organization.Since it is traded in the market it will be included in GDP. It is assumed over here that organization is using apples for final consumption.

c) This will not be included in GDP. This is because only when onion is finally sold to consumer for consumption that transaction will form the part of GDP.

d) In this case if red pepper alone is sold to consumer then it will form the part of GDP as it will be considered a Final Good. Red pepper present in tomato paste will not be considered as part of GDP. This is because when tomato paste is sold to consumers as final good then value of tomato paste will be included in GDP. Counting red pepper again will result in problem of double counting.

e) Flour sold by grocery store in menu to the consumer will be considered as final good as consumer has bought it for final consumption.This will be included in GDP.

f) The shirt sewed by consumer, if it is used for personal purpose or personal consumption then it will not be included in GDP. But if the consumer sells it in the market then it will be included in GDP as in that case it becomes the final good sold in the market.