Question:
Suppose a wealthy person bought the holiday home in Nuwara Eliya which he/she used to rent every year. Due to this transaction
(1) GDP decreases by the amount of the purchase of holiday home because consumption (C) decreases.
(2) GDP increases by the amount of the purchase of holiday home because investment (I) increases.
(3) GDP is unaffected because it is a second-hand sale.
(4) GDP decreases because investment (I) decreases.
(5) Investment (I) increases, but consumption (C) decreases.
Correct Answer:
(3)
Answer Explanation:
GDP measures the value of currently produced goods and services. Buying an existing holiday home is a transfer of ownership of an asset produced in a previous year (a second-hand sale), so it does not contribute to the current year’s GDP.
Topic: National Income Year: 2022
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