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Unformatted text preview: ECO 110 Homework #4 a. Homer pays a professional carpenter $50,000 to build a garage. This transaction is included in GDP, raising it by $50,000, because the $50,000 paid to the carpenter represents both the cost of labor by the carpenter and the price of the goods used to build the garage, which all count towards gross domestic product. b. Homer goes to the woods, cuts down a tree, and uses the wood to build himself a garage that is worth $50,000. This transaction is not included in GDP, because even though the garage is produced and is hypothetically worth $50,000, it is not actually being sold on the market and this $50,000 is not being generated from production. c. The Simpson family sells its old house to the Flanders family for $200,000. The Simpsons then buy a newly constructed house from a builder for $250,000. The first transaction, the reselling of a house for $200,000, is not included in GDP because the house...
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This note was uploaded on 03/12/2012 for the course ECON 110 taught by Professor Heller during the Spring '12 term at Georgia Perimeter.
- Spring '12