Question

Test Yourself hich of the following transactions are included in the oss domestic product, and by how much does each raise GDP? a. You buy a new Toyota, made in the United States, pay- ing $25,000. b. You buy a new Toyota, imported from Japan, paying $25,000 c. You buy a used Cadillac, paying $12,000. d. Google spends $500 million to increase its Internet capacity. e. Your grandmother receives a Social Security check for $1,500. f. Chrysler manufactures 1,000 automobiles at a cost of $15,000 each. Unable to sell them, the company holds the cars as inventory. 8. Mr. Black and Mr. Blue, each out for a Sunday drive, have a collision in which their cars are destroyed. Black and Blue each hire a lawyer to sue the other, paying the lawyers $5,000 each for services rendered. The judge throws the case out of court. h. You sell a used computer to your friend for $100. The following outline provides a complete scription of all economic activity in Trivialand 2018. Draw up versions of Tables 3 and 4 for Trivialand showing GDP computed in two different ways.10 i. There are thousands of farmers but only two big business firms in Trivialand: Specific Motors (an auto company) and Super Duper (a chain of food mar- kets). There is no government and no depreciation ii. Specific Motors produced 1,000 small cars, which it sold at $6,000 each, and 100 trucks, which it sold at $8,000 each. Consumers bought 800 of the cars, and the remaining 200 cars were exported to the United States. Super Duper bought all the trucks. ili. Sales at Super Duper markets amounted to $14 mil- lion, all of it sold to consumers. iv. All farmers in Trivialand are self-employed and sell all of their wares to Super Duper. v. The costs incurred by all of Trivialand's businesses were as follows: Wages Interest Rent Specific Motors Super Duper Farmers $3,800,000 $4,500,000 $ 0 100,000 200,000 700.000 200,000 1,000,000 2,000,000 0 7 .000.000 Purchases of food "In Trivialand, net nationa Other countries" or "income paid to other coun aland, net national product and net domestic product are the same. So there are no entries corresponding to "income received fror ncome paid to other countries as in Table 4.

Answer 1

1.

A

It will be included in the GDP in consumption component. It will increase the GDP by $25000.

B.

It will not affect the GDP, as it is produced outside the USA. Increase in consumption by $25000, will be nullified by the value of $25000 in import component.

C.

It will not be counted in GDP as it is produced in the past years.

D.

It will increase GDP by $500 million and it will be the part of investment component of GDP.

E.

It is transfer payment and it will not be the part of GDP.

F.

It will be counted as investment component of GDP as it is unsold inventory.

The increase in GDP = 1000*15000 = $ 15 Million

G.

It will be counted in GDP, as lawyers have given their services. It increases the GDP by $10000. ( $5000 by each lawyer).

H.

It is not the part of GDP, because used computer was produced in the past.

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