GDP Items Excluded from GDP 4 — Questions and Answers
Question 1: A landlord sells an apartment building originally constructed in 2010. What portion of the 2025 sale price is included in 2025 GDP?
- None; the structure was counted when built in 2010 (Correct answer)
- The full current sale price
- Only the capital gain since 2010
- The assessed property tax value
Correct answer: None; the structure was counted when built in 2010
The sale of existing real estate is a transfer of a previously produced asset; only new construction is included in GDP.
Question 2: Which of the following is the best example of a non-market activity excluded from GDP?
- A person mows their own lawn instead of hiring a landscaper (Correct answer)
- A firm buys a new lawn mower for its grounds crew
- A landscaper charges $75 to mow a client's lawn
- A city pays a contractor to maintain public parks
Correct answer: A person mows their own lawn instead of hiring a landscaper
Self-provided services like personal lawn care have no market transaction and therefore no recorded price, excluding them from GDP.
Question 3: Government unemployment insurance payments are excluded from GDP because they:
- Are transfer payments not tied to current production (Correct answer)
- Are funded by corporate taxes only
- Represent household savings
- Are classified as investment expenditure
Correct answer: Are transfer payments not tied to current production
Unemployment benefits transfer income to individuals without requiring the production of goods or services, making them a transfer payment excluded from GDP.
Question 4: An economist notes that GDP undercounts true economic welfare partly because it excludes:
- Household production such as cooking and cleaning (Correct answer)
- All government services
- Corporate dividend payments
- Foreign direct investment
Correct answer: Household production such as cooking and cleaning
Household production adds real value to people's lives but lacks market prices, causing GDP to understate total economic well-being.
Question 5: Which item would be excluded when calculating GDP using the expenditure approach?
- A $200 billion federal student loan disbursement (financial transfer) (Correct answer)
- A $200 billion federal highway construction project
- A $200 billion increase in consumer spending on new cars
- A $200 billion rise in business investment in new machinery
Correct answer: A $200 billion federal student loan disbursement (financial transfer)
Federal loan disbursements are financial transfers that provide purchasing power but do not themselves represent purchases of new goods or services.
Question 6: Why is the purchase of a plot of land excluded from GDP?
- Land is a pre-existing natural resource, not a newly produced good (Correct answer)
- Land is classified as a financial asset
- Only improvements to land count, not land itself
- Land purchases always occur in informal markets
Correct answer: Land is a pre-existing natural resource, not a newly produced good
Land is not produced by labor or capital; it is a natural resource, and transferring ownership of it adds no new output to the economy.
Question 7: Used clothing sold at a thrift store is excluded from GDP because:
- The goods were counted in GDP when originally produced and sold as new (Correct answer)
- Thrift stores are classified as nonprofit entities
- Clothing is a non-durable good exempt from national accounts
- Only clothing imports count toward GDP
Correct answer: The goods were counted in GDP when originally produced and sold as new
Second-hand sales transfer ownership of already-counted goods; including them again would double-count their original production value.
GDP Items Excluded from GDP 4
A landlord sells an apartment building originally constructed in 2010.
What portion of the 2025 sale price is included in 2025 GDP?