Which of the following would increase GDP?
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A. B. C. D.A
Since GDP represents the total market value of all final goods and services produced domestically during a specific period, GDP would rise if a foreign company starts to produce cars domestically.
Certainly! Let's go through each answer choice and determine how it would impact GDP.
A. Mercedes-Benz begins to produce and sell cars in Alabama. This scenario involves the production and sale of cars within the United States. When Mercedes-Benz starts producing and selling cars in Alabama, it leads to an increase in economic activity, including investments in facilities, hiring of workers, purchase of raw materials, and the eventual sale of cars. These activities contribute to the production of goods and services, which is a key component of GDP. Therefore, this choice would increase GDP.
B. An American investor buys 100 shares of Ford stock. The purchase of shares of stock does not directly contribute to GDP. Stock ownership represents a claim on the future earnings of the company but does not involve the production of goods or services. Therefore, this choice would not increase GDP.
C. Ford Motor Company begins to produce and sell cars in Japan. This scenario involves the production and sale of cars in Japan. While it is an expansion for Ford Motor Company, it does not contribute to the GDP of the United States since the economic activity takes place outside the country. GDP measures the value of goods and services produced within a country's borders. Therefore, this choice would not increase GDP.
D. An American investor purchases 100 shares of Mercedes-Benz stock. Similar to choice B, the purchase of shares of stock does not directly contribute to GDP. It represents a financial transaction between the investor and the seller of the stock, but it does not involve the production of goods or services. Therefore, this choice would not increase GDP.
To summarize, choice A (Mercedes-Benz begins to produce and sell cars in Alabama) would increase GDP because it involves the production and sale of cars within the United States. Choices B, C, and D would not directly increase GDP as they involve stock purchases or production and sales outside the country.