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Explain how Ireland's Gross Domestic Product (GDP) could be affected by any two of the following: (i) An increase in Child Benefit payments - Leaving Cert Economics - Question e - 2016
Question e
Explain how Ireland's Gross Domestic Product (GDP) could be affected by any two of the following: (i) An increase in Child Benefit payments. (ii) A foreign-owned co... show full transcript
Worked Solution & Example Answer:Explain how Ireland's Gross Domestic Product (GDP) could be affected by any two of the following: (i) An increase in Child Benefit payments - Leaving Cert Economics - Question e - 2016
Step 1
An increase in Child Benefit payments.
Answer
The increase in Child Benefit payments does not impact GDP. This is because child benefit is considered a transfer payment, meaning it is a payment made without any goods or services being provided in return. Consequently, this financial support is funded through taxation and is not included in the calculation of GDP.
Step 2
A foreign-owned company, operating in Ireland, sends back to their home country all the profits they have earned in Ireland.
Answer
When a foreign-owned company operating in Ireland remits all its profits back to its home country, there is no direct impact on the calculated GDP. GDP measures the value of all production within Ireland, regardless of ownership. However, these profits are not part of GDP since they are returned to the company's home country; instead, they would lower the Gross National Product (GNP) since GNP considers net income from abroad.
Step 3
An oil spill off the Irish coast costs the Irish Government significant clean-up costs.
Answer
An oil spill affecting the Irish coast could increase GDP due to the significant clean-up costs undertaken by the government. These expenditures are added to GDP, as they reflect economic activity. However, it is important to note that GDP does not account for environmental degradation; the clean-up costs primarily reflect a reactive approach to addressing an environmental disaster.