“Understanding the Components of U.S. GDP: What’s Included and What’s Not”

QUESTION

Are the following included in U.S. GDP? Briefly explain why or why not:

Used cars sold at a used car lot/dealership

Your used car you sell to your cousin

Wine made in Napa Valley at a vineyard owned by Australians

Wine made in Australia at a vineyard owned by Americans

The price paid by a French tourist when staying at a San Francisco hotel

The price paid by an American tourist staying at a Paris hotel

A ticket for a Lakers game

ANSWER

In the context of the U.S. Gross Domestic Product (GDP), it’s essential to understand what is included and what is not. GDP measures the total economic output within a country’s borders, and it includes various components of economic activity. Let’s examine each of the scenarios you’ve presented:

Used cars sold at a used car lot/dealership: Used cars are not typically included in GDP. This is because GDP measures the value of newly produced goods and services in an economy. Used cars are considered intermediate goods that were already counted when they were initially sold as new.

Your used car you sell to your cousin: Similar to the first scenario, the sale of a used car between individuals is not included in GDP. Again, this is because GDP focuses on newly produced goods and services.

Wine made in Napa Valley at a vineyard owned by Australians: This would be included in U.S. GDP. The production of goods, such as wine, within the country’s borders contributes to GDP, regardless of the ownership of the vineyard. However, profits earned by the Australian owners may be repatriated abroad and would not be included in U.S. GDP.

Wine made in Australia at a vineyard owned by Americans: This would not be included in U.S. GDP. While the ownership is American, the production and economic activity are occurring outside the U.S. and thus do not contribute to U.S. GDP.

The price paid by a French tourist when staying at a San Francisco hotel: This is included in U.S. GDP. Expenditure by foreign tourists within the U.S. is considered part of the country’s GDP under the category of exports of services.

The price paid by an American tourist staying at a Paris hotel: This is not included in U.S. GDP. Expenditure by U.S. residents outside the country is not counted in U.S. GDP; it falls under the GDP of the country where the expenditure occurs.

A ticket for a Lakers game: The ticket’s price is included in U.S. GDP. It represents a payment for an entertainment service within the country’s borders.

In summary, the inclusion or exclusion of various economic activities in U.S. GDP depends on whether they represent the production of new goods or services within the country’s borders. Used goods and transactions outside the U.S. are typically not counted, while domestically produced goods and services, even if owned by foreign entities, contribute to U.S. GDP.