QUESTIO An American company produces $10 million worth of cars in their factory

Question

QUESTIO 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 $3 million and US consumption increases by $5 million US consumption increases by $5 million and US GDP increases by $5 million Factor payments to abroad increase by $7 million and US GDP increases by $7 million. US national income increases by $7 million but US GDP remains unchanged

Explanation / Answer

Answer- Factor payments to abroad increase by $3 million and US consumption expenditure increases by $5 million

Factor payments to abroad(Brazil) by American company is the payment to Brazilian workers and rent to Brazilian company = $(2+1) million = $3 million
The company sends $5 million worth of cars to America and sells them to Americans. It means US consumption spending on cars increases by $5 million.

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