Question

For each of the following transactions, indicate whether it represents an increase in the U.S. gross domestic product (GDP), and, if so, state whether it represents U.S. consumption, investment, government purchases of goods or services, or net exports.If the transaction does not change U.S. GDP explain why not.(a) A wheat farmer sells wheat flour to a bakery to be used to produce bread.(b) You buy a new ToyotaCorolla (Toyota isa Japanese firm). The Corolla was built in a car factory in Alabama.(c) Domoniquebuys $1000worth of Applestock.(d) Your grandmother receives food stamps after your grandfather divorces her.(e) Boeing (a U.S. company) sells an 787 airplane(produced in its Seattle plant)to KoreanAirlines.(f) Mr. Arrietabuys aused robeat a yard sale.

Answer 1

(a)

A wheat farmer sells wheat flour to a bakery to be used to produce bread.

Wheat flour sold will act as input in production of bread.

So, wheat flour is intermediate good and intermediate goods are not counted in GDP.

Thus, this transactions will not change US GDP.

(b)

You buy new Toyota Corolla. It is built in car factory in Albama.

Final goods produced in US will be counted in US GDP.

So,

This transaction will increase in US GDP. This transaction represents US consumption.

(c)

Domonique buys $1,000 worth of Apple stock.

Sale and purchase of stocks and bonds is not counted in GDP.

So,

This transaction will not change US GDP.

(d)

Your grandmother receives food stamps after your grandfather divorces her.

Food stamps is a transfer payment and transfer payments are not counted in GDP.

So,

This transaction does not change in US GDP.

(e)

Boeing sells an 787 airplane to Korean Airlines.

Final goods sold to foreigners are counted in GDP.

So,

This transaction will increase US GDP. This transaction represents net exports.

(f)

Mr. Arrieta buys a used robe at a yard sale.

Sale and purchase of second hand goods is not counted in GDP.

So,

This transaction does not change US GDP.