Question

How would the domestic product be affected by the following transaction? Give reasons for your answer:

Sale of an old house through brokers who are paid a commission.

Answer 1

1. The sale of an old house itself does not affect the domestic product because the house was produced in an earlier year and its resale is merely a transfer of ownership, not a current production activity.
2. However, the commission paid to the brokers is a payment for services rendered in the current year, and such services are part of current economic activity. Since broker services involve current production and are paid for, the value of the commission is included in the domestic product. Therefore, only the broker’s commission will lead to an increase in the domestic product.