What components of GDP (if any) would each of the following transactions affect?
Explain.
(b) Aunt Jane buys a new house.
(c) Ford sells a Mustang from its inventory.
(g) Honda expands its factory in Marysville, Ohio.
My Answers:
(b) Investment since I read that new housing is included in Investment component of GDP.
(c) Nothing since would it being sold from their inventory would be negative in GDP.
(g) Investment since a firm is expanding their factory.
trt
correct
Your answers are partially correct.
(b) Aunt Jane buying a new house would indeed be categorized under investment in GDP. This is because the purchase of a new house is considered a capital expenditure, which contributes to the growth of the economy.
(c) Ford selling a Mustang from its inventory would be categorized under consumption in GDP. Consumption refers to the purchases made by consumers, and the sale of a car from inventory reflects consumer spending.
(g) Honda expanding its factory in Marysville, Ohio would be categorized under investment in GDP. This is because the expansion of the factory involves capital expenditure by Honda, which contributes to the growth and productivity of the economy.
In summary:
- Aunt Jane buying a new house contributes to investment.
- Ford selling a car from its inventory contributes to consumption.
- Honda expanding its factory contributes to investment.
Your answers are mostly correct, but let me explain in more detail for each transaction:
(b) Aunt Jane buying a new house: This would indeed be included in the Investment component of GDP. The purchase of a new house is considered an investment because it adds to the country's stock of physical capital. It directly contributes to GDP by increasing the value of investment in residential structures.
(c) Ford selling a Mustang from its inventory: This transaction would not directly affect GDP. When a product is sold from a company's inventory, it represents a transfer of ownership rather than a new production activity. The value of the Mustang would have already been included in GDP when it was initially produced. However, if Ford produced the Mustang during the current year, its sale would be included in GDP as part of the final sales of goods produced within that year.
(g) Honda expanding its factory in Marysville, Ohio: This expansion would be considered investment and would contribute to GDP. When a firm invests in expanding its production capacity or acquiring new capital goods (like a factory), it adds to the country's stock of physical capital. This investment spending is considered a component of GDP under the category of fixed investment, which reflects investment in structures and equipment.
In summary, Aunt Jane's purchase of a new house and Honda's factory expansion would be included in the Investment component of GDP. Ford's sale of a car from its inventory does not directly impact GDP, as it represents a transfer of ownership.