Question

Rotato, a U.S. tire company, produces a set of tires at a plant in Michigan on September 16, 2019. It sells the set of tires to Speedmaster for use in the production of a two-door coupe that will be made in the United States in 2019. (Note: Focus exclusively on whether production of the set of tires increases GDP directly, and ignore the effect of production of the two-door coupe on GDP.)

Answer 1

Answer:

Excluded from GDP

The production of the set of tires does not included on the GDP as it is referred to as an intermediate goods which are used to produce the final product (which is the two door coupe, in this case).

Explanation:

Gross domestic Production (GDP) represent the total production of a nation within its domestic borders. Some of the items that are excluded in GDP include: sales of goods that were produced outside the domestic borders of the country, intermediate goods that are used to produce other final goods, sales of used goods, illegal sales of goods and services (black market) and transfer payments made by the government