1. Khan Academy is a non-profit organization that provides free, online education as a supplement to in-class learning for anyone in a variety of fields. For example, see its material for Economic indicators and the business cycle, which is related to the subject of Module 1 of this course. Suppose this year (2021), Khan Academy receives $1 million gift from a charity foundation to fund a project for expanding and improving the Academy's economics lessons. With this money, the Academy hires a team of economists, media specialists, and software engineers in the United States to produce educational videos and makes them freely available on the Internet this year, thus spending all of the $1 million donation on the project in 2021. Assume that once the videos are produced, there is no cost in maintaining them and making them available on Internet. In answering the following questions, please explain the logic of your answer. An answer that only provides a numeric value is an incomplete one.

(a) Does this project account for any part of the U.S. GDP in 2021, and if so, for how much? Does the gift from the foundation to the Academy directly enter GDP calculations? Please explain all of your answers in detail. [10]

Answer:

(b) Now suppose that Academy decides to charge subscription fees for access to the new videos produced by the project and it manages to collect $1.25 million from subscribers each year during 2021-2025. If the Bureau of Economic Analysis (BEA) treats the production cost of videos incurred in 2021 as payment for intermediate goods, how much would this project add to the 2021 U.S. GDP? [6]

Answer:

(c) Again, consider the situation depicted in part (b). How much would the project add to the U.S. GDP in in 2022? [5]

Answer:

(d) Again, consider the situation depicted in part (b), but assume that the BEA treats the production cost of videos as payment for investment goods. In this case, how much would the project add to the 2021 U.S. GDP? [6]