a)
The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.
a)
Explanation of Solution
The
Net export = Export (X) − Import (IM)
GDP = C + I + G + X − IM
Thus, the prize money won in country E by the U.S. star: in
Reason: Winning prize money in a foreign nation by the US star adds the value of consumer spending to the GDP of the country U.
The calculation of GDP includes domestically produced final goods and services such as capital goods, change in inventory, and newly constructed structures in financial years.
It doesn’t include intermediate goods and services (to avoid the double entry problem), used goods, stocks and bonds, foreign-produced goods and services, and other items.
b)
The question requires us to categorize the given item which is included and excluded in the calculation of country U GDP in the relevant year.
b)
Explanation of Solution
The used toboggan purchased by a person on eBay: out
Reason: GDP measurement doesn’t include used goods.
c)
The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.
c)
Explanation of Solution
The whopper a person bought for lunch: in
Reason: Buying the whopper is considered consumption spending and it is part of GDP.
d)
The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.
d)
Explanation of Solution
The massage a person bought for his/her dad: in
Reason: Buying massage is part of consumption spending and thus, GDP includes it.
e)
The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.
e)
Explanation of Solution
The painting a person bought for his/her mother: in Reason: Buying painting is part of consumption spending and thus, GDP includes it.
f)
The question requires us to categorize the given item which is included and excluded in the calculation of country U’s GDP in the relevant year.
f)
Explanation of Solution
Coffee beans that didn’t sell in the following years by Starbucks: out Reason: the remaining coffee beans would be considered inventories and thus, is not part of this year's GDP.
Chapter 3R Solutions
Krugman's Economics For The Ap® Course
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