Question

2. Aji Fatou rents a house for which she pays the landlord $25,000 per year. The house can be purchased for $250,000 and Aji Fatou has this much money in her savings account that pays 6% interest per year. Aji Fatou is considering to buy the house. Is buying the house a good deal for Aji Fatou? (Hint: Consider Aji Fatou’s opportunity cost of buying the house and financial tradeoff: her lost interest vs. her gained rent).

3. A Midwestern farmer grows wheat and sells it to a miller for $800. After processing, the miller sells the flour to a baker for $1200, who then sells it to a grocery store for $1,500. The grocery store sells it to customers for $2,000. In these transactions, how much has been added to GDP

4. If a government spent more than it received in tax revenue, it gets a ____________________________________.

Answer 1

2.

gained rent or saved rent on purchasing the house=25000

lost interest by shifting money from bank to the house buy=250000*6%=15000, this is also the opportunity cost of buying house

as gained/saved rent of 25000 is higher than the lost interest of 15000, that means net benefit is more of buying the house, so buying house is a good deal for Aji Fatou.

the above is answer..

3.

how much has been added to GDP=2,000

because GDP only includes the final value of goods & services not the value of intermediate goods separately

4.

If a government spent more than it received in tax revenue, it gets a budget deficit

the above is answer..