What component of GDP (if any) will each of the following transactions affect? Explain.

Question

a. Uncle Henry buys a new refrigerator from a domestic manufacturer.
b. Aunt Jane buys a new house from a local builder.
c. The Jackson family buys an old Victorian house from the Walker family.
d. You pay a hairdresser for a haircut.
e. Ford sells a Mustang from its inventory to the Martinez family.
f. Ford manufactures a Focus and sells it to Avis, the car rental company.
g. California hires workers to repave Highway 101.
h. The federal government sends your grandmother a Social Security check.
i. Your parents buy a bottle of French wine.
j. Honda expands its factory in Ohio.

Answer 1

Answer:

a. Uncle Henry buys a new refrigerator from a domestic manufacturer.
Solution: Consumption
Explanation: Increase in consumption because a refrigerator is a good purchased by Uncle Henry for the household purpose

b. Aunt Jane buys a new house from a local builder.
Solution: Investment
Explanation: House is an investment good and increases investment

c. The Jackson family buys an old Victorian house from the Walker family.
Solution: No impact
Explanation: Nil impact because it is a old house

d. You pay a hairdresser for a haircut.
Solution: Consumption
Explanation: Consumption increases because haircut is a service

e. Ford sells a Mustang from its inventory to the Martinez family.
Solution: Consumption, Investment
Explanation: As car is a good purchased by a household thus consumption increases, however investment reduces because the car in Ford’s inventory will be been counted as an investment good until sold

f. Ford manufactures a Focus and sells it to Avis, the car rental company.
Solution: Investment
Explanation: Increase in investment because the company provides the rental services for car

g. California hires workers to repave Highway 101.
Solution: Government Purchases
Explanation: Increase in the government purchases because the government spent money to give a good to the public

h. The federal government sends your grandmother a Social Security check.
Solution: No impact
Explanation: Nil impact

i. Your parents buy a bottle of French wine.
Solution: Consumption, Net exports
Explanation: Increase in consumption because the bottle is a good purchased by a household, however net exports declines because the bottle was imported

j. Honda expands its factory in Ohio.
Solution: Investment
Explanation: Increase in investment because new structures and equipment were built.