Question

Which of the following are included in the calculation of this year's GDP? a. Twelve-year-old Bobby mowing his family's lawn c. Barbara Wilson buying 100 shares of Chrysler Corporation stock d. Stephen Sidwhali's receipt of a Social Security check e. An illegal sale at the corner of Elm and Jefferson

Short answer

Based on these analyses, none of the given options are involved in the calculation of this year's GDP.

Step-by-step solution

Identify Market Transactions

A market transaction implies a trade or exchange between two parties for a product or service. From the given options, the only potential market transaction could be option (e): an illegal sale at the corner of Elm and Jefferson.

Identify the Legitimacy of the Transaction

Although option (e) may seem like a market transaction, it is illegal and thus not included in GDP.

Eliminate Non-Market Transactions

Option (a) is a non-market transaction because it is a service provided within a family without any exchange of money. Therefore, it does not count towards the GDP. Similarly, option (d) Stephen Sidwhali's receipt of a Social Security check is also a non-market transaction as it is a transfer payment from the government to individuals and does not involve the production of goods and services.

Eliminate Stock Transactions

Option (c) involves the purchase of stocks which is a financial transaction and does not involve the actual production of goods or services, hence it is not counted in GDP.

Key concepts

Market Transactions

Market transactions involve the exchange of goods or services between two parties where money is typically used as a medium. These transactions are essential in the calculation of Gross Domestic Product (GDP) because they reflect the actual economic activity happening in a country. When considering market transactions for GDP, it's important to ensure they are legitimate. For instance:

• The sale of goods in a retail store.
• The purchase of a service like hairdressing or car repairs.

However, it's crucial to note that illegal trades, despite involving exchange and money, are not counted as part of the GDP. So, while something like an illegal sale might seem like a market transaction, it does not represent legitimate economic production and is therefore excluded from GDP calculations. Legal market transactions provide insights into the actual economic activity within a nation and are used to gauge economic health.

Non-Market Transactions

Non-market transactions are activities where goods or services are exchanged without a monetary payment. These do not appear in the GDP calculations as they do not directly involve market exchanges. Common examples include:

• A parent cooking dinner for their family.

These activities, while valuable and contributing to people's well-being, do not enter the market economy and hence are not included in GDP. Even payments like Social Security checks fall into this category. These are transfer payments, involving reallocating money from one entity (like the government) to an individual without the production of new goods or services. Hence, they don’t influence GDP measurements.

Financial Transactions

Financial transactions encompass the exchange of financial assets, such as stocks, bonds, or currency, without the production of new goods or services. These are considered separate from GDP calculations since GDP measures production, not the exchange of existing assets. Consider activities like:

• Buying shares in a company.
• Trading foreign currencies.

They are crucial for the workings of the financial markets, providing liquidity and enabling companies to raise capital. However, since they do not create new production, they are not part of GDP. Simply put, buying shares in a company changes ownership of the stock but does not alter the nation's production levels. Understanding this distinction helps in accurately determining what constitutes real economic growth and activity.