Question

By how much would GDP rise in each of the following scenarios? Explain, with reference to the definition of GDP above.

(c) The economy goes into recession. To counter this, the government decides to take a series of steps. First, it signs an infrastructure bill (investing in infrastructure like roads, bridges etc.) for $100 million. Next, it cuts tax rates by 5%, meaning a tax cut for industry amounting to $5 billion (think carefully about this one). Finally, it increases unemployment benefits by $200 million.

(d) A real estate agent sells a house for $200,000 that the previous owners bought 10 years earlier for $100,000. The agent earns a commission of $10,000 in the process. The new owners, in turn, convert the place into an Airbnb and earn $15,000 that same year from value-conscious holidayers.

Answer 1

Ans. c) GDP would increase by $300 , because tax cut would not change the GDP , unless industries save that money , which is very unlikely.

d) GDP would increase by $25000 , because houses are not included in GDP.

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