Which of the following transactions would be included in the calculation of Gross Domestic Product (GDP)

Which of the following transactions would be included in the calculation of Gross Domestic Product (GDP)?
a) The purchase of legal services
b) The purchase of a share of stock in Apple
c) The purchase of wheat by a bakery
d) All of the above

The Correct Answer and Explanation is :

Correct Answer:

a) The purchase of legal services

Explanation:

Gross Domestic Product (GDP) is the total monetary value of all final goods and services produced within a country’s borders during a specific period. To determine if a transaction contributes to GDP, it must meet certain criteria:

1. It must involve the production of final goods or services. Only final goods and services are counted in GDP to avoid double counting. Intermediate goods, such as wheat purchased by a bakery, are excluded because their value is already embedded in the final product (e.g., bread or cake).
2. It must occur within the country. The production of goods or services must take place domestically.
3. It must occur within the measurement period. Only transactions in the given year count towards GDP.

Now, let’s analyze each option:

• a) The purchase of legal services
  This transaction is included in GDP because legal services are a final service provided to consumers or businesses. These services represent economic activity and contribute to the country’s production of final goods and services.
• b) The purchase of a share of stock in Apple
  This transaction is excluded from GDP. Buying or selling stocks is a financial transaction and does not involve the production of goods or services. It is a transfer of ownership of financial assets, which does not directly affect the economy’s output.
• c) The purchase of wheat by a bakery
  This is an intermediate good used in the production of other goods (e.g., bread or pastries). Since it is not a final product, it is excluded from GDP to prevent double counting.

Thus, only legal services represent a final good or service that adds to GDP. Financial transactions and intermediate goods are excluded to provide an accurate measure of economic production.