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Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for \(70,000. The retailer, in turn, brings in \)160,000 from selling the bulbs directly to final customers. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year?

Short Answer

Expert verified

Only $160,000 will add to personal consumption expenditures and GDP during the year.

Step by step solution

01

Meaning of GDP

Gross Domestic Product (GDP) measures the income of an economy generated by producing goods and services within the domestic boundaries of the economy in a year for final consumption.

It includes factors like national private consumption, gross investment, government expenditure, and net exports. However, it does not comprise intermediate products, secondhand or non-productive transactions.

02

Calculating GDP

The income generated from the sale of bulbs to an internet retailer is an intermediate process. The retailer has sold it again to the final consumers generating additional income on the same product.

Counting both gains (the value added by selling to a retailer and to consumers) will create an issue of double counting the value of flower bulbs.Therefore, the economy鈥檚 GDP will not calculate the revenue generated from the sale of flower bulbs to the internet retailer.

The income generated from the sale of flower bulbs to final consumers will add to private consumption. Therefore, $160,000 will be counted in the GDP of the economy during the year.

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Most popular questions from this chapter

The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP. Indicate in each calculation whether you are inflating or deflating the nominal GDP data.

Which of the following items are included in official U.S. GDP statistics? Select one or more answers from the choices shown.

a. Revenue generated by illegal marijuana growers.

b. money spent to clean up a toxic waste site in Ohio.

c. Revenue generated by legal medical marijuana sales in California.

d. The dollar value of the annoyance felt by local citizens living near a noisy airport in Georgia.

e. Andre paying Ted for a haircut in Chicago.

f. Emily and Aliya trading an hour of dance lessons for a haircut in Dallas.

How do 鈥渇ree鈥 products make the calculation of GDP more difficult? What are hedonic adjustments, and why are they necessary? Will inflation tend to be overstated or understated if quality improvements are not accounted for? Explain

Why do national income accountants compare the market value of the total outputs in various years rather than actual physical volumes of production? What problem is posed by any comparison over time of the market values of various total outputs? How is this problem resolved?

Suppose that California imposes a sales tax of 10 percent on all goods and services. A Californian named Ralph then goes into a home improvement store in the state capital of Sacramento and buys a leaf blower that is priced at \(200. With the 10 percent sales tax, his total comes to \)220. How much of the \(220 paid by Ralph is in the national income and product accounts as private income (employee compensation, rents, interest, proprietor鈥檚 income, and corporate profits)?

a. \)220

b. \(200

c. \)180

d. none of the above

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