For each of the following events ceteris paribus state the e

For each of the following events, ceteris paribus, state the effect on GDP (does it increase/decrease/remain unchanged?) and why.

a. You are short of cash and you need more exercise so you sell your car for $1000.

b. A few small boat builders decide to move from the production of simple boats for leisure use to the production of yachts for the America’s Cup.

c. A major oil spill occurs off the coastline of an area with high unemployment levels. Many of the local unemployed are employed to help with the cleanup.

d. The ATO gets tough on illegal unrecorded activity (the underground economy).

Solution

Solution-

A. You are short of cash and you need more exercise so you sell your car for $1000.

   The effect of an GDP is Unchanged.

Reason-

Because, Second hand goods are not new production. GDP measures monentary value of finished goods produced withing country, GDP includes only new produced finished goods but in this Statement car is not a new produced good hence the effect of GDP in this situation is unchanged.

B. A few small boat builders decide to move from the production of simple boats for leisure use to the production of yachts for the America’s Cup.

The effect of GDP is Increased.

Reason-

Because, more value-added; possibly a shift from non-market to market production. In general, the market production means the product or services which is at the expense of a money market and Non-market production means no financial transaction or activities related to activities, and no related transaction costs.

C. A major oil spill occurs off the coastline of an area with high unemployment levels. Many of the local unemployed are employed to help with the cleanup.

The effect of GDP is Increased.

Reason-

Because, unemployed workers become employed; no decrease for disaster itself

D. The ATO gets tough on illegal unrecorded activity (the underground economy).

The effect of GDP is Increased.

Reason-

Because there are two reasons are as follows:

(i) more activity is recorded or

(ii) as the tax department hires previously unemployed workers.