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Question: 8 earthquakes and gdp suppose the rural part of a...

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8. Earthquakes and GDP: Suppose the rural part of a country is hit by a major earthquake that destroys 10 percent of the countrys housing stock. The govern- ment and private sector respond with a major construction effort to help rebuild houses. Discuss how this episode is likely to affect (a) the economic well-being of the people in the country and (b) the economys measured GD. WORKED EXERCISE 1. What counts as GDP (I)? (a) GDP rises by the $5,000 amount of your tuition payment. This is the pur- chase of a service (education) that is produced this semester (b) The purchase of used goods does not involve new production. This example is just the transfer of an existing good, so GDP is unchanged. If you bought the used car from a used-car dealer, the service of selling the car would represent new production-so something like $200 of the $2,500 might be included in GDP. (c) The new dam is new production, and the government spending of $100 million is counted as GDP. Notice that if the spending were spread over several years, then the flow of new production (and GDP) would also be spread over time. (d) Foreign graduate students working in the United States contribute to pro- duction that occurs within the United States, and this is included in GDP. So GDP goes up by $5,000 for each student.

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