1.Which of the following are included in GDP and which are not? If an item is included, state which GDP category it falls under (consumption, investment, government, trade balance)
a) the cost of having your appendix removed
b) buying a new car from a dealership
c) buying a used car from your neighbor
d) the lettuce sold to the sub shop that will go on your sandwich
e) babysitting services at a licensed day care provider
f) babysitting services provided by your cousin
g) a 2 year increase in life expectancy
2. The nation of Econoland had a Nominal GDP of $1,200,000 in 2005 with a price index of 1.1. The same nation had a Nominal GDP of $2,000,000 in 2006 with a price index of 1.9.
a) What is the Real GDP for Econoland in 2005 and in 2006?
b) Explain how it’s possible that Nominal GDP can rise while Real GDP can fall.