Which of the following transactions will be included in GDP for the US? Explain.
a. Coca Cola builds a new bottling plan in the US.
b. Delta sells one of its existing planes to Korean Air.
c. An American buys a bottle of French Wine.
d. An American buys a share of Disney stock.
e. A book publisher produces too many copies of a new book. The books don’t sell this year so the publisher adds the surplus to inventories.
The correct answer and explanation is:
Correct Transactions Included in U.S. GDP:
Included in GDP:
✅ a. Coca Cola builds a new bottling plant in the US.
✅ e. A book publisher produces too many copies of a new book. The books don’t sell this year so the publisher adds the surplus to inventories.
Explanation (Approximately 300 Words):
Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country’s borders during a given time period, typically a year. It only includes current production, and excludes financial transactions and second-hand sales.
Let’s evaluate each option:
a. Coca Cola builds a new bottling plant in the US.
✅ Included in GDP. This is an investment in physical capital (known as gross private domestic investment) and contributes to current production. It takes place within U.S. borders and reflects economic activity.
b. Delta sells one of its existing planes to Korean Air.
❌ Not included in GDP. This is the sale of a used good, which was already counted in GDP when it was originally produced and sold. Resale of used items does not count toward current GDP.
c. An American buys a bottle of French wine.
❌ Not included in GDP. This is an import, meaning the production occurred in France, not the U.S. Imports are subtracted from GDP because they do not represent domestic production.
d. An American buys a share of Disney stock.
❌ Not included in GDP. Purchasing stocks is a financial transaction and does not represent the production of goods or services. It is simply a transfer of ownership.
e. A book publisher produces too many copies of a new book. The books don’t sell this year so the publisher adds the surplus to inventories.
✅ Included in GDP. Unsold goods added to inventory are considered part of investment (specifically, inventory investment) because they were produced in the current period. They count as part of GDP even if not sold.
Conclusion: Only (a) and (e) are included in current U.S. GDP.