1

This question may appear to be naive, however, since I am having problems understanding it, I had to resort to ask it here.

How will the sale of an old house at a profit affect the GDP? Let us say I bought a house in 2010 for $ \$100,000$. Depreciation per year was $ \$10,000$, hence in the year 2015, the house should have been worth $ \$50,000$. However, in the same year (2015), I sold the house at a price of $ \$80,000$ (thus a profit of $ \$30k$). Certainly the $ \$50k$ won't be added into the GDP of the year 2015 because it is nothing but just a sharing of the expenses, but, what's bothering me is the profit of $ \$30k$. Since this is a kind of "value added", how do I incorporate it in the expenditure and income models of the GDP? Should I consider it as an investment made by the business?

Harsh Sharma
  • 167
  • 6

1 Answers1

2

Revised: The sale of the old house is not counted toward GDP as GDP is intended to measure the value of currently produced goods and services in the economy. Used goods are not currently produced, and were already counted the year they were newly produced.

However, the services provided this year by real estate agents are in the current year, so the market value of those services, measured by real estate agent commissions are included in GDP.

http://www.sextonmacro2e.nelson.com/student/section/ch06.html

If the house was new it would fall under the expenditure approach the purchase of a house sold at 80 K would fall under Residential Investment (part of I investment).

Using the Income Approach (http://www.econport.org/content/handbook/NatIncAccount/CalculatingGDP/Examples.html#incomeexample )

Depreciation -50 K
business profits - 30 K

Depreciation and business profits would be added together toward National Income.

Mike J
  • 1,471
  • 7
  • 21