Principles of Macroeconomics / Unit 3 MAC 0211 worked example, 60 to 90 seconds
Is It Counted in GDP?
The idea
To decide whether something belongs in this year's GDP, ask three questions in order. Was it produced? A transfer of money or of an existing object produces nothing. Was it produced this year? Output counts in the year it was made, never when it changes hands later. And was it a final good sold in a market? Parts bought to make something else are intermediate, and work done outside any market is not measured at all. Only something that answers yes three times is counted.
In practice
Worked example: a used car sold this year fails the second question, because it was counted when built. A share bought on the stock market fails the first, because nothing was produced. A pension payment fails the first for the same reason. A tire sold to a car plant fails the third, as an intermediate good. A meal cooked at home fails the third, as non-market work. A newly built house passes all three.
Where people slip
The commission on the used car does count, because the dealer produced a service this year even though the car itself did not. That pattern repeats: when an old object changes hands, the object is not counted but any new service arranged around it is.
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