GDP is calculated as the total market value of all final goods and services produced in a country during a year. (1) Suppose that in 2019, geologists discover large reserves of oil in Alaska which have a market value estimated at $50 billion at current oil prices. (2) Oil companies rush in and spend $1 billion to hire workers and position equipment to begin exploratory pumping during the same year. (3) One company accidentally spills some oil into a bay and by the end of the year pays $1 billion to other companies to clean it up. (4) The oil spill kills thousands of birds, seals, and other wildlife. What would be the effect of each of these 4 events on the US GDP for 2019 and why

$2 billion

The amounts that would be included in GDP include the cost of hiring workers and the cost of cleaning up the spill.

1 billion + 1 billion = $2 billion

The negative effects of the oil spill would not be included in GDP because effects of population is not included in GDP.

Also, the value of the oil discovered would not be included in GDP because it was not sold in the current year.

Explanation:

Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year

GDP calculated using the expenditure approach = Consumption spending by households + Investment spending by businesses + Government spending + Net export

Net export = exports imports

When exports exceed import there is a trade deficit and when import exceeds import, there is a trade surplus.

Items not included in the calculation off GDP includes:

services not rendered to oneself

Activities not reported to the government

illegal activities

sale or purchase of used products

sale or purchase of intermediate products

Nominal GDP is GDP calculated using current year prices while Real GDP is GDP calculated using base year prices. Real GDP has been adjusted for inflation.

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