Determine the contribution to the current year\'s GDP. Explain the effects on th

Question

Determine the contribution to the current year's GDP. Explain the effects on the product, income, and expidenditure accounts.

1.) A japanese company builds an auto plant in Tennessee for $100,000,000, using only local labor and materials. (Hint: the auto plant is a capital good produced by Americans and purchased by the Japanese.)

2.) Hertz Rent a Car replaces its rental fleet by buying $100,000,000 worth of new cars from General Motors. It sells its old fleet to a consortium of used car dealers for $40,000,000. The consortium resells the used cars to the public for a total of $60,000,000.

Explanation / Answer

A: Your purchase is part of consumption from expenditure side (2.8x10=$28) and also mirror part for income approach (wages, taxes, corporate profits, etc.) Week before gas company made investment of 2.6x10=$26 and later company's resources added value for GDP of +$2.

B: 1'000'000 / 1.06 = $943'396 Change of ownership for investment from previous periods (not created in this period GDP, though constitutes part of it as capital or inventories) 1'000'000 - 943'396 = $56'604 (6% fee) Income side, wage or corporate income (includes taxes)

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