<p>No.</p>
<ol>
<li><p>GDP only records spending on <em>final goods and services</em>. When firms trade things between each other it is not generally included in GDP.</p>
</li>
<li><p>Expenditure on second hand sales between regular people are not included at all. If you sell your car on craigslist it wont enter GDP.</p>
</li>
</ol>
<p>Hence what you describe does not affect vale of GDP at all.</p>

CC BY-SA 4.0
2023-09-27T14:04:18.607Z
thank you. Understood. You answered my question. I'd like to select your answer but I don't have the previlegies yet
Fuzzy
CC BY-SA 4.0
2023-09-28T15:40:06.017Z
But, if a car is re-sold, monetary transaction takes place which can then increase disposable income for the seller, and then increase GDP that way, correct?
Kwame Brown
CC BY-SA 4.0
2023-09-28T21:19:57.100Z
@KwameBrown no if you sell your car on craigslist even though transaction is taking place it is not recorded in GDP. If we talk about second hand dealership only the difference between what the second hand dealership bought the car and sale value would be added to the GDP as that means that the car dealership had to somehow improve/fix the old car or add value through some other way (good marketing) otherwise the car could not be sold for more than the dealership bought it so that difference would be added to GDP because that is new value created, but still you do not record the value of that
1muflon1
CC BY-SA 4.0
2023-09-28T21:21:56.277Z
car only the (usually) relatively small increase in value
1muflon1
CC BY-SA 4.0
2023-09-28T22:05:44.790Z
@1muflon1 I agree, the re-selling of the car may not mechanically increase GDP, but the re-selling of the car would increase someone's income (the seller's) who can then increase their demand somewhere else, leading to a real increase in GDP through increased aggregate demand. Correct?
Kwame Brown
CC BY-SA 4.0
2023-09-29T08:06:23.920Z
@KwameBrown 1. Not necessarily. For example, you sell the car on craiglist and get 1000 extra income, that will typically increase your aggregate demand (although not 100% as it also depends on parameters of consumption and investment function), however, the buyer of the car has now 1000 less disposable income, so their aggregate demand decreases. If the two consumers are similar this will just cancel out. If they are different (different marginal propensity to consume) it is possible that GDP will increase in future but it might also decrease in future
1muflon1
CC BY-SA 4.0
2023-09-29T08:08:01.600Z
@KwameBrown 2) this is however completely irrelevant. Aggregate demand increases GDP because it leads to more **new** production! Hence **this is not artificial** increase in GDP. If more things are produced GDP should naturally increase, regardless whether this new production was stimulated by second hand sales or through other channels
1muflon1
CC BY-SA 4.0
2023-09-23T22:01:52.627Z
2023-09-23T22:01:52.627Z
1muflon1
<p>No, that's not how GDP is determined.  GDP, or Gross Domestic Product, is determined in several alternative (theoretically similar) ways.</p>
<p><strong>Production Approach:</strong> GDP is the sum total of the &quot;market value&quot; of all goods and services produced in the economy over a given time period (usually a year).</p>
<p><strong>Income Approach:</strong> GDP is the sum total of all incomes earned by individuals and businesses, including wages and profits in a given time period.</p>
<p><strong>Expenditure Approach:</strong> GDP is the sum total of all expenditures or spending made in the economy, typically given in the equation <span class="math-container">$C + I + G + (X - M)$</span> where <span class="math-container">$C$</span> = Final consumption of individuals and businesses but importantly <strong>not</strong> spending between individuals like your scenario, <span class="math-container">$I$</span> = Investment by businesses, <span class="math-container">$G$</span> = Government spending (including gov investment, <span class="math-container">$X$</span> = Value of exports, and <span class="math-container">$M$</span> = Value of imports.</p>
<p>GDP became the dominant metric for conducting comparative analysis of the growth between nation states in the late 20th Century, replacing the less widely used Gross National Income (GNI) which is simply the total income earned by a nation's residents and businesses, including any income from abroad.  It captures overseas dividends and investment income repatriated to the home economy.</p>
<p><span class="math-container">$$
GNI = GDP + (Net \, income \, from \, assets \, abroad \, - \,net\, outflow\, to\, foreign\, assets)
$$</span></p>
<p>It's important to say that GDP, and indeed most single value economic metrics, is a deeply flawed indicator of a nation's well-being and individual prosperity.  It crudely indicates how much is produced by a country but goes no further into how that production is distributed or used.  It also fails to account for negative externalities such as pollution and environment or social degradation.  It also completely misses out entire spheres of society such as household management and human caring.  The modern world, dominated by theoretical economists, kneels at the alter of GDP growth at our peril.</p>

CC BY-SA 4.0
2023-09-28T08:26:21.697Z
2023-09-28T08:26:21.697Z
Jamie Smith
<p>One way to calculate the GPD (Gross Domestic Product) of a country is essentially adding up all spending by the country in a year (individuals, governament and companies).
Let us know consider this situation:
A and B are two citizens of the same country. On January A pays B 100 and gets his car. After two months, B pays A 100 and gets his car back. At the end A and B have the same cash and cars they had at the beginning, so basically nothing has changed.</p>
<p><strong>Question</strong>: these two two spending events, so this would increase the GDP by 100+100=200, but nothing has changed, so it seems to me that this way of measuring the GDP is meaningless.</p>

<macroeconomics><gdp>
Is the GDP artificially increased by repeatedly buying and selling the same product?
Fuzzy
# Is the GDP artificially increased by repeatedly buying and selling the same product?

(Asked by: username_0 on 2023-09-23)

One way to calculate the GPD (Gross Domestic Product) of a country is essentially adding up all spending by the country in a year (individuals, governament and companies).
Let us know consider this situation:
A and B are two citizens of the same country. On January A pays B 100 and gets his car. After two months, B pays A 100 and gets his car back. At the end A and B have the same cash and cars they had at the beginning, so basically nothing has changed.

**Question**: these two two spending events, so this would increase the GDP by 100+100=200, but nothing has changed, so it seems to me that this way of measuring the GDP is meaningless.

**Tags:** macroeconomics, gdp


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## 2 answers

### Answer by username_1 on 2023-09-23. Score: 1 | Accepted answer

No.

1. GDP only records spending on *final goods and services*. When firms trade things between each other it is not generally included in GDP.
2. Expenditure on second hand sales between regular people are not included at all. If you sell your car on craigslist it wont enter GDP.

Hence what you describe does not affect vale of GDP at all.

> **Comments:**
> **username_0**: thank you. Understood. You answered my question. I'd like to select your answer but I don't have the previlegies yet  
> **username_2**: But, if a car is re-sold, monetary transaction takes place which can then increase disposable income for the seller, and then increase GDP that way, correct?  
> **username_1**: @username_2 no if you sell your car on craigslist even though transaction is taking place it is not recorded in GDP. If we talk about second hand dealership only the difference between what the second hand dealership bought the car and sale value would be added to the GDP as that means that the car dealership had to somehow improve/fix the old car or add value through some other way (good marketing) otherwise the car could not be sold for more than the dealership bought it so that difference would be added to GDP because that is new value created, but still you do not record the value of that  
> **username_1**: car only the (usually) relatively small increase in value  
> **username_2**: @username_1 I agree, the re-selling of the car may not mechanically increase GDP, but the re-selling of the car would increase someone's income (the seller's) who can then increase their demand somewhere else, leading to a real increase in GDP through increased aggregate demand. Correct?  
> **username_1**: @username_2 1. Not necessarily. For example, you sell the car on craiglist and get 1000 extra income, that will typically increase your aggregate demand (although not 100% as it also depends on parameters of consumption and investment function), however, the buyer of the car has now 1000 less disposable income, so their aggregate demand decreases. If the two consumers are similar this will just cancel out. If they are different (different marginal propensity to consume) it is possible that GDP will increase in future but it might also decrease in future  
> **username_1**: @username_2 2) this is however completely irrelevant. Aggregate demand increases GDP because it leads to more **new** production! Hence **this is not artificial** increase in GDP. If more things are produced GDP should naturally increase, regardless whether this new production was stimulated by second hand sales or through other channels  

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### Answer by username_3 on 2023-09-28. Score: 0

No, that's not how GDP is determined. GDP, or Gross Domestic Product, is determined in several alternative (theoretically similar) ways.

**Production Approach:** GDP is the sum total of the "market value" of all goods and services produced in the economy over a given time period (usually a year).

**Income Approach:** GDP is the sum total of all incomes earned by individuals and businesses, including wages and profits in a given time period.

**Expenditure Approach:** GDP is the sum total of all expenditures or spending made in the economy, typically given in the equation $C + I + G + (X - M)$ where $C$ = Final consumption of individuals and businesses but importantly **not** spending between individuals like your scenario, $I$ = Investment by businesses, $G$ = Government spending (including gov investment, $X$ = Value of exports, and $M$ = Value of imports.

GDP became the dominant metric for conducting comparative analysis of the growth between nation states in the late 20th Century, replacing the less widely used Gross National Income (GNI) which is simply the total income earned by a nation's residents and businesses, including any income from abroad. It captures overseas dividends and investment income repatriated to the home economy.

$$
GNI = GDP + (Net \, income \, from \, assets \, abroad \, - \,net\, outflow\, to\, foreign\, assets)
$$

It's important to say that GDP, and indeed most single value economic metrics, is a deeply flawed indicator of a nation's well-being and individual prosperity. It crudely indicates how much is produced by a country but goes no further into how that production is distributed or used. It also fails to account for negative externalities such as pollution and environment or social degradation. It also completely misses out entire spheres of society such as household management and human caring. The modern world, dominated by theoretical economists, kneels at the alter of GDP growth at our peril.


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