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Chapter 11: Problem 5

What is the difference (for purposes of measuring GDP ) between buying a new computer and buying 100 shares of stock?

Short Answer

Expert verified
The difference in regard to measuring GDP between buying a new computer and buying 100 shares of stock is that the purchase of a new computer contributes to the GDP as it is a consumable good, whereas the purchase of 100 shares of stock does not, as it is a financial transaction considered a transfer of ownership, not a measure of output or income as GDP intends to measure.

Step by step solution

01

Understanding the Basic Definitions

GDP (Gross Domestic Product) is the total value of goods produced and services provided in a country during one year. This includes all private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs, and the foreign balance of trade (exports are added, imports are subtracted).
02

Contextualizing the Buying of a New Computer

When a new computer is bought, it is considered a good that is produced and then consumed. Therefore, it contributes to the GDP. It affects the consumption section of the GDP, which accounts for private expenditure in the economy.
03

Contextualizing the Buying of 100 Shares of Stock

On the other hand, buying 100 shares of stock is not a consumable good or service. It does not produce anything or provide any service, it is simply a transfer of ownership. It's a financial transaction, not a measure of output or income, which is what GDP is intended to measure. Hence, it doesn't contribute to the GDP.

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Most popular questions from this chapter

Can GDP go up at the same time that real GDP goes down? Explain your answer.

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Define: a. base year b. real GDP

Suppose the CPI was 143 in year 1 and 132 in year 2 Did prices rise or fall between year 1 and year \(2 ?\)

Why are only final goods and services computed in GDP?
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