QUESTION 4 An American company produces $10 million worth of cars in their facto

Question

QUESTION 4 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 Factor payments to abroad increase by $3 million and US consumption increases by $5 million US consumption increases by $5 million and US GDP increases by $5 million O US national income increases by S7 million but US GDP remains unchanged. QUESTION A Japanese consultancy firm operating in New York hires an American worker. They pay him $30,000 in s. The new worker's contribution is to bring a new client to the firm that buys consulting services for 40,000(you may assume no other new cost was involved in this other than the wage). The client is a Canadian firm located in Toronto. Which of the following is correct? National income increases by $30,000 and factor payments to abroad increase by S10,000, so US GDP increases by $40,000 National income increases by $30,000 and factor payments from abroad increase by $30,000, so US GDP remains unchanged Consumption increases by $40,000 and imports increase by $40,000,so US GDP remains unchanged O Consumption increases by $30,000 and exports increase by $10,000,so US GDP increases by $40,000

Explanation / Answer

Question 4: Production Value = $10 million in American Company in Brazil

Factor Payments to Brazilians from American Company:

1.Brazillion workers earnings = $ 2 millions

2.Brazillion Company rent earning = $ 1 million

Total = $ 3 million

Ssince America gets = $ 5 million back from Brazil, therefore its consumption increases by $ 5 million.

So, Answer is (B).

According to definition of GDP, "GDP is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year." Therefore, The production of $10 million dollars in Brazil will be considered in their GDP and not in America's. However, Consumption of America increases by $5 million dollars because $5 million valued cars are sent back to USA for selling.

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