Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 8: Q. 12 (page 186)

A number of economists contend that official measures of U.S. gross private investment expenditures are understated. For instance, household spending on education, such as college tuition expenditures, is counted as consumption. Some economists suggest that these expenditures, which amount to 6 percent of GDP, should be counted as investment instead. Based on this 6 percent estimate and the GDP computations detailed in Figure 8-3, how many billions of dollars would shift from consumption to investment if this suggestion was adopted?

Short Answer

Expert verified

As a result, if this proposal is approved, a transfer of 6%of GDP, or $1,092.6billion, will be added to investment spending.

Step by step solution

01

   Introduction

Households spend a significant portion of their budget on college tuition, which is an investment expense in some ways. As a result, it has been proposed that this component of consumption be viewed as an investment.

02

    Conclusion

According to current estimates, these expenditures amount to 6%of GDP, or $1092.6billion dollars. As a result, if this proposal is approved, a transfer of 6%of GDP, or $1092.6billion, will be added to investment spending.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Explain the expenditure and income approaches to tabulating GDP.

How do you suppose that differing levels of government business regulations and varying levels of enforcement of those regulations might affect the size of the underground economy? Explain your reasoning.

Explain what happens to the official measure of GDP in each of the following situations.

a. Air quality improves significantly throughout the United States, but there are no effects on aggregate production or on market prices of final goods and services.

b. The U.S. government spends considerably less on antipollution efforts this year than it did in recent years.

c. The quality of cancer treatments increases, so patients undergo fewer treatments, which hospitals continue to provide at the same price per treatment as before.

Which of the following are production activities that are included in GDP? Which are not?

a. Mr. King performs the service of painting his own house instead of paying someone else to do it.

b. Mr. King paints houses for a living.

c. Mrs. King earns income from parents by taking baby photos in her digital photography studio.

d. Mrs. King takes photos of planets and stars as part of her astronomy hobby.

e. E⋆Trade charges fees to process Internet orders for stock trades.

f. Mr. Ho spends \(10,000on shares of stock via an Internet trade order and pays a \)10brokerage fee.

g. Mrs. Ho receives a Social Security payment.

h. Ms. Hernandez makes a $300payment for an Internet-based course on stock trading.

i. Mr. Langham sells a used laptop computer to his neighbor.

Each year after a regular spring cleaning, Maria spruces up her home a little by retexturing and repainting the walls of one room in her house. In a given year, she spends \(25on magazines to get ideas about wall textures and paint shades, \)45on newly produced texturing materials and tools, \(35on new paintbrushes and other painting equipment, and \)175on newly produced paint. Normally, she preps the walls, a service that a professional walltexturing specialist would charge \(200to do, and applies two coats of paint, a service that a painter would charge \)350to do, on her own.

a. When she purchases her usual set of materials and does all the work on her home by herself in a given spring, how much does Maria's annual spring texturing and painting activity contribute to GDP?

b. Suppose that Maria hurt her back this year and is recovering from surgery. Her surgeon has instructed her not to do any texturing work, but he has given her the go-ahead to paint a room as long as she is cautious. Thus, she buys all the equipment required to both texture and paint a room. She hires someone else to do the texturing work but does the painting herself. How much would her spring painting activity add to GDP?

c. As a follow-up to part (b), suppose that as soon as Maria bends down to dip her brush into the paint, she realizes that painting will be too hard on her back after all. She decides to hire someone else to do all the work using the materials she has already purchased. In this case, how much will her spring painting activity contribute to GDP?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free