Question

QUESTION 25 Two houses are sold; one that is brand new construction (never lived in) and one that was built and sold in 1980. The new house sold for $400,000, the 1980 house sol $500,000. Which of the following is correct? GDP would increase by $900,000 and the increase would show up as part of "C" GDP would increase by $400,000 and the increase would show up as part of "C" GDP would increase by $500,000 and the increase would show up in "T" GDP would increase by $400,000 and the increase would show up in T

Answer 1

d. GDP would increase by $400,000 and the increase would show up in "I"

GDP includes only newly constructed houses and not resale of old houses as it was already added in GDP when it was freshly constructed and if we again count it in GDP, it will pose problem of double counting. It is investment as purchase of land, building etc is counted as Investment.

c. All the above

A mortgage-backed security (MBS) is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. Investors in MBS receive periodic payments similar to bond coupon payments. The MBS is a type of asset-backed security. Similarly, the CDO is also like this only.

c. education level

Consumption is affected by income, wealth and price level. If a person have high knowledge but less income, he will spend less and vice versa.