Question

Indicate what components of GDP (if any) each of the following transactions would affect. Check all that apply. Government Purchases Net Exports Consumption Investment Transaction Uncle Henry buys a new refrigerator from a domestic manufacturer. Aunt Jane buys a new house from a local builder. The Jackson family buys an old Victorian house from the Walker family. You pay a hairdresser for a haircut. Ford sells a Mustang from its inventory to the Martinez family. Ford manufactures a Focus and sells it to Avis, the car rental company California hires workers to repave Highway 101. The federal government sends your grandmother a Social Security check. Your parents buy a bottle of French wine. Honda expands its factory in Ohio.

Answer 1

Consumption. Consumption (C) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services.

The business investment includes purchases that companies make to produce consumer goods. But, not every purchase is counted. If a purchase only replaces an existing item, then it doesn't add to GDP and isn't counted. Purchases must go toward creating new consumer goods to be counted

In economics, consumption refers to activities that directly provide utility to people, whereas investment refers to the accumulation of capital goods -- inputs that contribute to production over a (more or less) long life span.

Government spending or expenditure includes all government consumption, investment, and transfer payments. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment (government gross capital formation).

Transfer payments include Social Security, Medicare, unemployment insurance, welfare programs, and subsidies. These are not included in GDP because they are not payments for goods or services but rather means of allocating money to achieve social ends. e.g. federal govt sends social security to your grandmother.

Net exports include activities with another country.

All these will help you to identify each activity into separate components of GDP. Although all correct options are marked already. If you need any help in any activity, pls do comment in the comment section.