An American company produces $10 million worth of cars in their factory located
ID: 1162369 • Letter: A
Question
An American company produces $10 million worth of cars in their factory located in Brazil. They pay $2 million in wages to Brazilian workers and $1 million for rent to a Brazilian company and they have no other costs. They send $5 million worth of cars back to the US and sell them to Americans.The rest of the cars are sold in Brazil. Which of the following is correct?
Factor payments to abroad increase by $7 million and US GDP increases by $7 million.
US consumption increases by $5 million and US GDP increases by $5 million.
US national income increases by $7 million but US GDP remains unchanged.
Factor payments to abroad increase by $3 million and US consumption increases by $5 million
Factor payments to abroad increase by $7 million and US GDP increases by $7 million.
US consumption increases by $5 million and US GDP increases by $5 million.
US national income increases by $7 million but US GDP remains unchanged.
Factor payments to abroad increase by $3 million and US consumption increases by $5 million
Explanation / Answer
Factors payment to abroad(Brazil) by domestic (American) company increases= payment to Brazilian workers + Payment for rent to a Brazilian company = $ 3 million
The company sells $5 million worth of cars in America, raising the domestic (USA) consumption by $5 million.
Answer- option D
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