Which of the following items contribute(s) to an increase in real GDP?
(i) The cost of cleanup after a hurricane hits Florida
(ii) The market value of burglar alarms purchased to reduce crime
(iii) The additional health care costs associated with smoking
(iv) The production of a nuclear bomb
I think all of them.
To determine which of the following items contribute to an increase in real GDP, we need to understand what is included in the calculation of GDP.
Gross Domestic Product (GDP) is a measure of the total value of goods and services produced within a country's borders during a specific time period. It is usually measured annually. There are four main components that make up GDP:
1. Consumption (C): This includes spending by households on goods and services, such as food, clothing, and healthcare.
2. Investment (I): This includes spending by businesses on capital goods (e.g., machinery, equipment) and construction of new buildings. It also includes spending on research and development.
3. Government spending (G): This includes spending by the government on goods and services, such as infrastructure projects and public education.
4. Net exports (NX): This is the value of a country's exports minus the value of its imports. It represents the contribution of international trade to GDP.
With this understanding, let's analyze the given items:
(i) The cost of cleanup after a hurricane hits Florida:
The cost of cleanup after a hurricane would fall under government spending (G) since it is an expense incurred by the government. Therefore, it would contribute to an increase in real GDP.
(ii) The market value of burglar alarms purchased to reduce crime:
The purchase of burglar alarms falls under consumption (C) since it is spending by households on goods to enhance their security. Therefore, it would contribute to an increase in real GDP.
(iii) The additional health care costs associated with smoking:
The additional health care costs associated with smoking would also fall under consumption (C) since it is spending by households on healthcare services. Therefore, it would contribute to an increase in real GDP.
(iv) The production of a nuclear bomb:
The production of a nuclear bomb would fall under government spending (G) since it is an expense incurred by the government. However, it is important to note that the production of a nuclear bomb is a highly controversial and ethically questionable activity and its inclusion in GDP is not a measure of its desirability or societal benefit. From an economic standpoint, the production of a nuclear bomb would increase real GDP due to government spending.
In summary, the items (i), (ii), (iii), and (iv) all contribute to an increase in real GDP.