Question

Question 1: GDP and its components Suppose you are measuring annual GDP by adding up the final value of all goods and services produced in the economy. Determine the effect of each of the following transactions on the level of GDP. (a) You buy from a fisherman $100 worth of fish, which you cook and eat at home. (b) A seafood restaurant buys $100 worth of fish from a fisherman. (c) CN Rail buys new railcars from Bombardier for $200 million. (d) The French national railway buys new railcars from Bombardier for $200 million. (e) WestJet sells one of its jets to Air Canada for $80 million.

Answer 1

a)

$100 will be added to GDP as private consumption expenditure

Cooking at home is not counted under GDP

b)

Nothing gets added to GDP because the fish here is an intermediate good and not final good

c)

$200 million get added to GDP as investment

d)

$200 million get added to GDP as government expenditure

e)

Nothing gets added to GDP as there is no sale of new products. Resale is not counted under GDP