Answer to Question #212138 in Macroeconomics for Corni

Question

Q1.What contributes more to GDP- production of an economy car or a luxury car? Why?

Q2.Explain why an economy’s income must equal its expenditure

Q3.A farmer sells cocoa to a beverage producer for Ghc2. The producer uses the cocoa to make Milo and sells it for Ghc3. What is the total contribution of these transactions to GDP?

Q4.GDP does not include the value of used goods that are resold. Why would including such transactions make GDP a less informative measure of economic well-being?

Q5.G does not include spending on transfer payments. Why are transfer payments excluded?

Q6.A few years ago, John paid Ghc500 to put together a record collection. Today, she sold her albums at a garage sale for Ghc100. How does this sale affect GDP?

Answer 1

Q1 The production of a luxury car will contribute more to GDP than the production of an economy car. This is because the market value of a luxury car is higher than the value of an economy car.

Q2 Every transaction has a buyer and a seller thus the expenditure of by buyers must equal income by sellers .

Q3 The total contribution will be Ghc 3. The market value of Milo is Ghc 3 which is the final product .

Q4 Counting the sale of used goods lead to Double Counting . If counted they add more value to GDP than it really does. This means it will give a misleading information on GDP as only final and new goods should be counted.

Q5 GDP tries to measure the value of production of final goods and services. With transfer payments there is nothing produced hence it cannot be included in GDP

Q5 The sale of John's albums does not affect GDP as nothing has been newly produced in the economy.