2. Using the expenditure approach, state whether each of the following transacti

Question

2. Using the expenditure approach, state whether each of the following transactions would be directly counted in the U.S. Gross Domestic Product in the current year. For those directly counted, indicate whether they count as C, I, G or NX, and indicate both the dollar amount of the contribution, and the sign (positive or negative). For those not included, explain why not in a few words Unless otherwise stated, assume that All goods and services use only U.S.-produced inputs All households and firms are located in the U.S., All activity occurs during the current year (i.e. the year during which GDP is being measured), None of transactions are hidden from the Bureau of Economic Analysis a. Samsonite Corporation produces a suitcase which is purchased by a U.S. household for S300 b. Steelcase Corporation produces a file cabinet which is purchased by the U.S. army to keep track of documents. The purchase price is $700 NYC Tours, Inc. - a private firm that gives tours- earns $45,000 in revenue during the year taking foreign tourists on guided bus tours around Manhattan. An NYU student buys a used car from another NYU student for $3,000 An NYU student pays $20,000 during the year to rent a closet-sized studio apartment in the village from the apartment's owner A new home is built and sold to a household for $400,000 The Mayor of New York City earns a salary of $135,000 A household purchases 100 shares of General Motors stock for $9,000, plus S25 in commissions paid to the stock brokerage company c. d. e. f. g. h. i. General Motors produces an automobile valued at $40,000, but doesn't se it during the year j. An unemployed auto worker receives $10,000 in unemployment insurance benefits k. General Motors buys 1,000 reams of paper for $3,000. Two-thirds of the paper is used by the company's office workers during the year, the rest is not used until future years 1. An NYU professor deposits $1,000 into her personal checking account at Citibank. m. A household donates $500 worth of used clothing to a charity n. A U.S. clothing manufacturer buys $12,000 worth of cotton from a firm in Egypt, then uses it to manufacture shirts which are sold to U.S. households for $18,000. (Hint: two components of GDP are affected here) A furniture manufacturer sells $7,000 worth ofchairs to households, all from its inventories of unsold chairs. All of these chairs sold from its inventory were produced in previous years o.

Explanation / Answer

(a) Samsonite is a Hong Kong based firm, so when US household buys a Samsonite product, it is an import of goods. An import will be deducted from Exports to arrive at Net exports (NX), so this transaction will decrease GDP by $300.

(b) This transaction is government spending on goods (G), which will increase GDP by $700.

(c) Revenue earned by US firm on services provided within US will be counted as Personal Consumption Expenditure (C), and will increase GDP by $45,000.

(d) Transaction concerning a used good is not included in GDP, to avoid double counting error.

NOTE: As per Answering Policy, 1st 4 parts have been answered.

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