Question

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion?

Answer 1

Answer:

GDP is likely to remain same as a result of this conversion.

Explanation:

GDP is the total value of goods & services, produced by an economy, during a given year.

It can be calculated by 2 methods

• By Expenditure method : GDP = Private Final Capital Expenditure + Govt. Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports
• By Income method : NDP = Compensation of Employees + Operating Surplus (Rent + Profit + Income) + Mixed Income

Given case - Converting a rented apartment into a resident owned condominium , with value of housing services = rent formerly paid :

This brings no change in the GDP, as : The apartment 'rent' previously paid was included in 'operating surplus' of national income, by Income method. And, the equal condominium value is now included in investment addition i.e 'Gross domestic capital formation' , by Income method.