Questions on Estimating GDP
Week 1
1. To estimate GDP you add the value of all the goods and services produced, both final and intermediate goods. Is this procedure correct? Why?
This is incorrect because intermediate goods are not calculated separately in GDP, they are already included in the final product.
2. What is the relationship between aggregate income and aggregate production? Why does this relationship exist?
Aggregate income is the total of all income earned within a time period and is another way of measuring GDP. Aggregate production is a function that measures the production of output in an economy and the amount of labor input. The labor input translates to aggregate income, income is earned by labor input (along with rent).
3. Does my purchase of a domestically produced Ford automobile that was manufactured in 2000 add to the current U.S. GDP? Why? How about my purchase of a domestically produced, newly produced Ford? Why?
Buying a used vehicle does not add to the current GDP because it was already accounted for in the year it was originally produced and sold. If you buy a brand new, domestically produced Ford, it will affect the current GDP because it has never before been accounted for and is produced within the country.
4. Does my purchase of 100 shares of stock in Google add to the nation's GDP?
No, only items that were produced are counted towards GDP. Financial securities and investments are not a good or service.
5. If a homeowner cuts his or her lawn, is the value of this work included in real GDP? Suppose that the homeowner hires a neighborhood kid to cut the lawn. Is this activity included in real GDP? Comment on your answers.
If a homeowner cuts his own lawn, it will not be included in real GDP because leisure time is not included in the calculation. If the homeowner hires someone, it is included because it now becomes a paid service.
6. In 1900, the average work week was 65 hours; today it is approximately 35 hours. How did this change affect real GDP within the
1. To estimate GDP you add the value of all the goods and services produced, both final and intermediate goods. Is this procedure correct? Why?
This is incorrect because intermediate goods are not calculated separately in GDP, they are already included in the final product.
2. What is the relationship between aggregate income and aggregate production? Why does this relationship exist?
Aggregate income is the total of all income earned within a time period and is another way of measuring GDP. Aggregate production is a function that measures the production of output in an economy and the amount of labor input. The labor input translates to aggregate income, income is earned by labor input (along with rent).
3. Does my purchase of a domestically produced Ford automobile that was manufactured in 2000 add to the current U.S. GDP? Why? How about my purchase of a domestically produced, newly produced Ford? Why?
Buying a used vehicle does not add to the current GDP because it was already accounted for in the year it was originally produced and sold. If you buy a brand new, domestically produced Ford, it will affect the current GDP because it has never before been accounted for and is produced within the country.
4. Does my purchase of 100 shares of stock in Google add to the nation's GDP?
No, only items that were produced are counted towards GDP. Financial securities and investments are not a good or service.
5. If a homeowner cuts his or her lawn, is the value of this work included in real GDP? Suppose that the homeowner hires a neighborhood kid to cut the lawn. Is this activity included in real GDP? Comment on your answers.
If a homeowner cuts his own lawn, it will not be included in real GDP because leisure time is not included in the calculation. If the homeowner hires someone, it is included because it now becomes a paid service.
6. In 1900, the average work week was 65 hours; today it is approximately 35 hours. How did this change affect real GDP within the