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GDP Figuring Help

PrectoMundo
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1/2/2015 9:13:05 PM
Posted: 1 year ago
Here's a question for the more economically savvy than I. I am a part of a mini-society that produces many things and at the end of each year we calculate our GDP. Our government pays incentives for recruiting new members and also pays incentives for staying "active".

The question I have is whether activity incentives (paying someone to remain "active" and "involved" by rewarding them with money just to stick around and talk every once in a while) should count towards GDP? It's not exactly producing per se, which is why it confuses me, but there could probably be an argument for it. Let me know what you all think!
Diqiucun_Cunmin
Posts: 2,710
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1/3/2015 10:43:45 AM
Posted: 1 year ago
At 1/2/2015 9:13:05 PM, PrectoMundo wrote:
Here's a question for the more economically savvy than I. I am a part of a mini-society that produces many things and at the end of each year we calculate our GDP. Our government pays incentives for recruiting new members and also pays incentives for staying "active".

The question I have is whether activity incentives (paying someone to remain "active" and "involved" by rewarding them with money just to stick around and talk every once in a while) should count towards GDP? It's not exactly producing per se, which is why it confuses me, but there could probably be an argument for it. Let me know what you all think!

I think it depends on whether the people are considered individual firms, or work for a firm/the government.

If they are working for the government/some kind of firm:
If people stick around and talk to everyone once in a while, they are putting mental and physical effort into producing talking-and-sticking-around services, so their efforts are considered labour. The monetary compensation was for the production of these services, so the money is considered a kind of wage, which is included in the GDP.

If they are their own firms:
Then the government is subsidising production. Whether you include that in the GDP depends on whether you are considering the GDP at factor costs or market price. (In case you are not familiar with such terms, here's a yardstick: If you calculate GDP with the value-added method/production approach, you are calculating at factor costs; if you use the expenditure approach (i.e. C+I+G+X-M), you are calculating at market prices.) If you are using the GDP at factor cost, you should add the subsidy to the GDP at market price and vice versa. (Subsidy makes stuff cheaper, so GDP(FC) + SUB = GDP(MP))
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
Posts: 2,710
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1/3/2015 11:10:39 AM
Posted: 1 year ago
At 1/3/2015 10:43:45 AM, Diqiucun_Cunmin wrote:
At 1/2/2015 9:13:05 PM, PrectoMundo wrote:
Here's a question for the more economically savvy than I. I am a part of a mini-society that produces many things and at the end of each year we calculate our GDP. Our government pays incentives for recruiting new members and also pays incentives for staying "active".

The question I have is whether activity incentives (paying someone to remain "active" and "involved" by rewarding them with money just to stick around and talk every once in a while) should count towards GDP? It's not exactly producing per se, which is why it confuses me, but there could probably be an argument for it. Let me know what you all think!

I think it depends on whether the people are considered individual firms, or work for a firm/the government.

If they are working for the government/some kind of firm:
If people stick around and talk to everyone once in a while, they are putting mental and physical effort into producing talking-and-sticking-around services, so their efforts are considered labour. The monetary compensation was for the production of these services, so the money is considered a kind of wage, which is included in the GDP.

If they are their own firms:
Then the government is subsidising production. Whether you include that in the GDP depends on whether you are considering the GDP at factor costs or market price. (In case you are not familiar with such terms, here's a yardstick: If you calculate GDP with the value-added method/production approach, you are calculating at factor costs; if you use the expenditure approach (i.e. C+I+G+X-M), you are calculating at market prices.) If you are using the GDP at factor cost, you should add the subsidy to the GDP at market price and vice versa. (Subsidy makes stuff cheaper, so GDP(FC) + SUB = GDP(MP))

I'm more inclined towards the former, on second thoughts. If they are operating their own firms, then they must be entrepreneurs, who by definition must bear the risks of the firm. However, they do not provide capital or bear risks; they just walk around talking to people. Thus I believe the former is the better answer.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
twocupcakes
Posts: 2,748
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1/3/2015 12:02:08 PM
Posted: 1 year ago
At 1/2/2015 9:13:05 PM, PrectoMundo wrote:
Here's a question for the more economically savvy than I. I am a part of a mini-society that produces many things and at the end of each year we calculate our GDP. Our government pays incentives for recruiting new members and also pays incentives for staying "active".

The question I have is whether activity incentives (paying someone to remain "active" and "involved" by rewarding them with money just to stick around and talk every once in a while) should count towards GDP? It's not exactly producing per se, which is why it confuses me, but there could probably be an argument for it. Let me know what you all think!

It should count. Government expenditure counts for GDP. So, if the government pays somebody to do anything at all, it counts.
Diqiucun_Cunmin
Posts: 2,710
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1/3/2015 8:03:06 PM
Posted: 1 year ago
At 1/3/2015 12:02:08 PM, twocupcakes wrote:
At 1/2/2015 9:13:05 PM, PrectoMundo wrote:
Here's a question for the more economically savvy than I. I am a part of a mini-society that produces many things and at the end of each year we calculate our GDP. Our government pays incentives for recruiting new members and also pays incentives for staying "active".

The question I have is whether activity incentives (paying someone to remain "active" and "involved" by rewarding them with money just to stick around and talk every once in a while) should count towards GDP? It's not exactly producing per se, which is why it confuses me, but there could probably be an argument for it. Let me know what you all think!

It should count. Government expenditure counts for GDP. So, if the government pays somebody to do anything at all, it counts.

That's not really true as transfer payments do not count. To be counted in the GDP, an item must involve production, i.e. it must have value added. When a government builds infrastructure, it is counted into the government expenditure, but not when it provides social security as no real production is involved in it.

This is why increasing government spending on infrastructure, etc. is more efficient than increasing transfer payments in boosting the GDP. Spending on infrastructure guarantees that all of it will go towards boosting the GDP. If you spend it on transfer payments, some of the payments will go into private savings, while the rest will go towards consumption. Only the consumption is counted into the GDP.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
twocupcakes
Posts: 2,748
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1/4/2015 11:52:35 AM
Posted: 1 year ago
At 1/3/2015 8:03:06 PM, Diqiucun_Cunmin wrote:
At 1/3/2015 12:02:08 PM, twocupcakes wrote:
At 1/2/2015 9:13:05 PM, PrectoMundo wrote:
Here's a question for the more economically savvy than I. I am a part of a mini-society that produces many things and at the end of each year we calculate our GDP. Our government pays incentives for recruiting new members and also pays incentives for staying "active".

The question I have is whether activity incentives (paying someone to remain "active" and "involved" by rewarding them with money just to stick around and talk every once in a while) should count towards GDP? It's not exactly producing per se, which is why it confuses me, but there could probably be an argument for it. Let me know what you all think!

It should count. Government expenditure counts for GDP. So, if the government pays somebody to do anything at all, it counts.

That's not really true as transfer payments do not count. To be counted in the GDP, an item must involve production, i.e. it must have value added. When a government builds infrastructure, it is counted into the government expenditure, but not when it provides social security as no real production is involved in it.

This is why increasing government spending on infrastructure, etc. is more efficient than increasing transfer payments in boosting the GDP. Spending on infrastructure guarantees that all of it will go towards boosting the GDP. If you spend it on transfer payments, some of the payments will go into private savings, while the rest will go towards consumption. Only the consumption is counted into the GDP.

Okay thanks, interesting.
Illegalcombatant
Posts: 4,008
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1/12/2015 2:42:50 AM
Posted: 1 year ago
I suppose what we need is some kind of productive work done and productive things produced number rather than just a GDP which doesn't factor in such considerations.
"Seems like another attempt to insert God into areas our knowledge has yet to penetrate. You figure God would be bigger than the gaps of our ignorance." Drafterman 19/5/12
darkkermit
Posts: 11,204
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1/16/2015 1:08:24 AM
Posted: 1 year ago
Your activity doesn't have to be productive to be part of GDP. I'm at work right now and apparently I'm somehow contributing to the economy at this time right now.
Open borders debate:
http://www.debate.org...
Benshapiro
Posts: 3,942
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1/17/2015 6:31:17 PM
Posted: 1 year ago
It depends on where the money comes from.

If deficit spending is used to pay these people then GDP will increase beyond the alternative.

If spending is foregone in another sector to pay these people the GDP will have a net 0 increase.
Diqiucun_Cunmin
Posts: 2,710
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1/17/2015 7:43:00 PM
Posted: 1 year ago
At 1/16/2015 1:08:24 AM, darkkermit wrote:
Your activity doesn't have to be productive to be part of GDP. I'm at work right now and apparently I'm somehow contributing to the economy at this time right now.

Your average labour productivity is low right now but you receive a wage (return of labour) for it, so you're still producing...
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
darkkermit
Posts: 11,204
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1/19/2015 2:11:45 AM
Posted: 1 year ago
At 1/17/2015 7:43:00 PM, Diqiucun_Cunmin wrote:
At 1/16/2015 1:08:24 AM, darkkermit wrote:
Your activity doesn't have to be productive to be part of GDP. I'm at work right now and apparently I'm somehow contributing to the economy at this time right now.

Your average labour productivity is low right now but you receive a wage (return of labour) for it, so you're still producing...

Yes, that's the point. GDP can be measured based on the income method. But just because one earns an income doesn't mean one is actually productive. Overall GDP does balance out, since its just evened out as wealth transfer. If any time not spent working disappeared, then it would go to company profit and GDP would still remain the same, but the transfer of income wouldn't.

Whether or not the income is made from productive work or not is irrelevant to the question of whether it should be counted towards GDP.
Open borders debate:
http://www.debate.org...
darkkermit
Posts: 11,204
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1/19/2015 2:17:49 AM
Posted: 1 year ago
Actually government wealth transfers aren't considered part of GDP. So it's really question if you consider this income or a welfare program? Since it's incentive-based it sounds more like income than welfare.

Government spending on GDP is tricky because its non-voluntary transactions. What constitutes a good or service is irrespective to the value it actually produces.
Open borders debate:
http://www.debate.org...
Diqiucun_Cunmin
Posts: 2,710
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1/19/2015 3:10:23 AM
Posted: 1 year ago
At 1/19/2015 2:17:49 AM, darkkermit wrote:
Actually government wealth transfers aren't considered part of GDP. So it's really question if you consider this income or a welfare program? Since it's incentive-based it sounds more like income than welfare.

It could also be a subsidy (the second paragraph of my first reply above),

I don't think it's welfare either, for the reason you stated.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
DarkEternal
Posts: 2
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2/9/2015 11:58:30 AM
Posted: 1 year ago
At 1/2/2015 9:13:05 PM, PrectoMundo wrote:
Here's a question for the more economically savvy than I. I am a part of a mini-society that produces many things and at the end of each year we calculate our GDP. Our government pays incentives for recruiting new members and also pays incentives for staying "active".

The question I have is whether activity incentives (paying someone to remain "active" and "involved" by rewarding them with money just to stick around and talk every once in a while) should count towards GDP? It's not exactly producing per se, which is why it confuses me, but there could probably be an argument for it. Let me know what you all think!

I hope my answer will help in different way, hahaha. I would like to make concept of GDP as clear as possible. GDP (Gross Domestic Product) is the market value of all FINAL goods and services produced within a country in a given period of time. Remember, FINAL good is different from INTERMEDIATE good. FINAL good is good that come from firms which created the good and consume directly by CONSUMERS. INTERMEDIATE good is good from firms which created the good, but the good is not consumed directly by consumer, however the good is used by another firm first. Example: a farmer sells wheat to a baker. A baker sells bread to the consumer. The wheat is INTERMEDIATE good and the bread is FINAL good. Know the difference? Now, you should know what the components of GDP: Consumption (C), Investment (I), Goverment Purchases (G), and Net Exports (NX) within formula Y=C+I+G+NX . You asked " is whether activity incentives (paying someone to remain "active" and "involved" by rewarding them with money just to stick around and talk every once in a while) should count towards GDP?" I can answer: yes. You spend what to pay them? Monet. And you get what? People that just stick around and talk every once in a while. Is there any transaction in this process? Yes. Remember, an economy as a whole when income equal it's expenditure.