Chapter 5: Problem 2

Which of the following are included in GDP, and which are not? a. The cost of hospital stays b. The rise in life expectancy over time c. Child care provided by a licensed day care center d. Child care provided by a grandmother e. A used car sale f. A new car sale g. The greater variety of cheese available in supermarkets h. The iron that goes into the steel that goes into a refrigerator bought by a consumer.

Short Answer

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Included in GDP: a. The cost of hospital stays c. Child care provided by a licensed day care center f. A new car sale Not included in GDP: b. The rise in life expectancy over time d. Child care provided by a grandmother e. A used car sale g. The greater variety of cheese available in supermarkets h. The iron that goes into the steel that goes into a refrigerator bought by a consumer

Step by step solution

Item a. The cost of hospital stays

The cost of hospital stays is a market transaction where a consumer pays for medical services. It is a final service as it is consumed by individuals and not used to create another good. Therefore, the cost of hospital stays is included in GDP.

Item b. The rise in life expectancy over time

The rise in life expectancy over time is an indicator of social well-being and public health improvement, but it is not a market transaction or a final good or service. Thus, it is not included in GDP.

Item c. Child care provided by a licensed day care center

Child care provided by a licensed day care center is a market transaction, as parents are paying for the child care service. It is a final service because it is consumed as is and not used to produce another good. Therefore, child care provided by a licensed day care center is included in GDP.

Item d. Child care provided by a grandmother

Child care provided by a grandmother does not represent a market transaction, as it is a non-market activity that does not involve any payment for the service. Therefore, it is not included in GDP.

Item e. A used car sale

A used car sale is a transfer of ownership and does not involve any new production of goods or services. Therefore, used car sales are not included in GDP.

Item f. A new car sale

A new car sale is a market transaction where a consumer buys a newly produced good. It is a final good because the consumer purchases the car for the utility it provides, and it will not be used to produce another good or service. Thus, new car sales are included in the GDP.

Item g. The greater variety of cheese available in supermarkets

Although the greater variety of cheese available in supermarkets may improve consumer choices and satisfaction, it does not represent a market transaction or a final good or service by itself. Therefore, the greater variety of cheese available in supermarkets is not included in GDP.

Item h. The iron that goes into the steel that goes into a refrigerator bought by a consumer

The iron in this scenario is an intermediate good, as it is used to produce the steel, which is then used to produce the refrigerator. Intermediate goods are not counted in GDP to avoid double counting. However, the final good (the refrigerator) is included in GDP when it is sold to the consumer. In this case, the value of the iron and steel is already embedded in the final price of the refrigerator. So, the iron itself is not included in GDP.

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