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Unformatted text preview: Econ 1, Fall 2010 Problem Set 2 Solutions University of California, Berkeley Page 1 of 8 Problem Set #2 Solutions 1. Explain whether or not, why, and how the following items are included in the calculation of GDP: a. The broadcast of a call-in TV show featuring an economics professor over the commercial-free public television network C-SPAN. The broadcast of a call-in TV show featuring an economics professor over the commercial-free public television network C-SPAN is not directly counted in GDP, as viewers are not paying to watch the program. It is an intermediate gooda vehicle for advertising final goods and services. If there were any government spending in support of this public television network (as is often the case for public television or radio), it would count in GDP as part of G . However, in the case of C-SPAN there is no government spending, so none of the endeavor is counted directly in GDP. b. The broadcast of a call-in TV show featuring an economics professor over the for-profit cable TV network Fox news. The broadcast of a call-in TV show featuring an economics professor over the for-profit cable TV network Fox news is not directly counted in GDP. Rather, the fees paid by cable subscribers who watch the broadcast are counted in GDPspecifically in C . c. The purchase of a previously-built house. The purchase of a previously-built house will not be counted in GDP. The purchase represents a transformation of wealth (from one asset to another asset) and does not itself involve the production of a new good a service. Any service fees paid to real estate agents or banks will count toward GDP in I , as part of residential investment. d. The rent you pay on your apartment. Rent represents payment for housing services and is thus included in GDP. When homeowners pay the mortgages on homes they occupy, they are essentially providing housing services to themselves. That is, for purposes of the calculation of GDP they are acting as their own landlords, and the amount of money for which the home could be rented is imputed and included in GDP. e. The sale of a used bicycle by its owner to Hank and Frank for $20, and then your purchase of that same bicycle for $60. The value of the used bicycle will not be included in GDP, so as not to double count the production of the bicycle. The value of any services provided or value added by Hank and Frank will be included, which would amount to something between $0 and $40. If the transaction with Hank and Frank is part of the informal or underground economy (that is, if Hank and Frank are not a formal business and do not report their revenue or profit), the services they provide or the value added by them should be counted in GDP in principle but are not in reality....
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