Textbook, questions 7-13 ANSWERS

(a) Interest on an AT&T bond. Included. - Income received by the bondholder for the services derived by the corporation for the loan of money.

(b) Social security payments received by a retired factory worker. Excluded. - A transfer payment from taxpayers for which no service is rendered (in this year).

(c) The services of a family member in painting the family home. Excluded. - Not a market transaction. If any payment is made, it will be within the family.

(d) The income of a dentist. Included. - Payment for a final service. You cannot pass on a tooth extraction!

(e) The money received by Smith when she sells her economics textbook to a book buyer. Excluded. - Secondhand sales are not counted; the textbook is counted only when sold for the first time.

(f) The monthly allowance a college student receives from home. Excluded. - A private transfer payment; simply a transfer of income from one private individual to another for which no transaction in the market occurs.

(g) Rent received on a two-bedroom apartment. Included. - Payment for the final service of housing.

(h) The money received by Josh when he resells his current-year-model Honda automobile to Kim. Excluded. - The production of the car had already been counted at the time of the initial sale.

(i) The publication of a college textbook. Included. - It is a new good produced for final consumption.

(j) A 2-hour decrease in the length of the workweek. Excluded. - The effect of the decline will be counted, but the change in the workweek itself is not the production of a final good or service or a payment for work done.

(k) The purchase of an AT&T corporate bond. Excluded. - A noninvestment transaction; it is merely the transfer of ownership of financial assets. (If AT&T uses the money from the sale of a new bond to carry out an investment in real physical assets that will be counted.)

(l) A $2 billion increase in business inventories. Included. - The increase in inventories could only occur as a result of increased production.

(m) The purchase of 100 shares of GM common stock. Excluded. - Merely the transfer of ownership of existing financial assets.

(n) The purchase of an insurance policy. Included. - Insurance is a final service. If bought by a household, it will be shown as consumption; if bought by a business, as investment—as a cost added to its real investment in physical capital.