Question 2. Identify the immediate effect of each of the following events on its

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Question 2. Identify the immediate effect of each of the following events on its components in 2017- (30 points in total; 5 points for each part [a] John buys a German sports car in 2017. [b]Henry, a business owner in Utah, buys domestically produced tools for his construction company in 2017. [c] Alice buys a used Ford Mustang from a local dealer and pays the dealer s8,000. The Ford Mustang was produced in 2010 in Detroit, MI. [d] Apple produces about $1 billion worth of iPhones, iPads and Mac computers in China in 2017. [el FoxConn, a manufacturer from Taiwan, builds a $3 billion factory in Wisconsin in 2017. [f] The state government of Utah increased public education funding by over $300 million in 2017.

Explanation / Answer

[a] Purchase of a sports car is an import. So import will increase, net exports will decrease and US GDP will decrease.

[b] Henry's purchase is a business fixed investment, so gros domestic privae demand increases and US GDP increases.

[c] Transaction price of the used car is excluded from GDP to avoid double counting, so US GDP is unchanged.

[d] Production in China is done outside US, therefore it is not included in US GDP.

[e] A Taiwanese firm building a factory in US is equivalent to the Taiwan firm purchasing from US, which increases US exports, increases US Net exports and increases US GDP by $3 Billion.

[f] Increased public education spending increases government spending by $300 million which increases US GDP by $300 million.

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