Question

1 For each part use the expenditures approach to indicate how the following actions affects (i) Consumption, (ii) Investment, (ii) Government Purchases, (iv) Net Exports, and (v) GDP for the current year. (Do not assume anything "special" beyond what's mentioned in the question) An Apple Store has 500 currently produced iPhones at $200 each. By the end of the year it has sold 300 of these iPhones to consumers. (a) (b) The government buys 50,000 computers at $1000 each for public schools, $1,000,000 of army tanks produced in the current year by a domestic manufacturer, $500,000 of uniforms produced in South Korea, and spends $300,000 on unemployment benefit payments c) Wal-Mart spends $10 million to build a new department store. Included in this $10 million are S5.5 million of currently produced domestic materials, $3 million of steel produced in the previous year by a U.S. steel mill, and $1,500,000 of wood produced from trees in Brazil. A flour mill sells 200 lbs of flour to a bakery at $2 per lb. By the end of the year 150 lbs of that flour has been used to make 500 loaves of bread sold to consumers at $1.50 each. (d) Four years ago you purchase a new house for S350,000. In the current year, following the collapse of the housing market, you are only able to sell this house for $300,000, you pay your real estate agent a 5% commission assisting you with this sale. You purchase a newly constructed condo for $150,000. (e)

Answer 1

a) GDP is the current value of all the final good produced in a country during a particular period of time GDP does not takes into account the value of good produced in different years or spending in social security or non marketed services. Investment is the most volatile part of the GDP it consists residential investment, non residential investment and change in inventories the production by apple in current years i) increases current GDP ii) increase consumption as consumers bought 300 I phones iii) increases inventory as 200 I phones remain un sold b) the government expenditure is another part of GDP includes non defense expenditure and defense social security does not changes current GDP. i) computers, array tanks increases GDP uniforms decreases GDP. Ii) computers, array tanks, uniform all part of gore expenditure iii) uniform is import by govt. sector. C) investment by wall mart in current produced increase GDP. i) domestic material increases GDP wood decreases GDP ii) domestic material residential investment iii) wood is import by firms

increases GDP. Both counted in current consumption.