Question

ECO - 252 Macroeconomics

2. Classify each of the following as consumption (C), investment (I), government purchases (G), exports or imports. More than one category could apply.

Assume that all actions take place within the U.S. in 2010 and that 'new ' refers to a good/service produced in 2010. If the good or service is not included in any of the components of the 2010 U.S. GDP write 'No'.

a. A movie company makes 500,000 DVDs of one of its newest releases. It sells 300,000 of them to consumers and stores the rest in its warehouse.

b. Stephanie buys a designer dress produced by an American-owned fashion shop in France.

c. The U.S. government pays a retired economist from the U.S. department of Commerce $30,000 in retirement benefits.

d. A German citizen living in Berlin, Germany, buys a new car produced in the United States by a Japanese company.

e. Maria makes her bed every morning before going to work.

f. A bicycle manufacturer buys steel from a steel company.

g. The White House buys a fleet of new cars made in Detroit, MI.

h. A bakery buys a new oven.

i. Ashley buys a used sports car made in Italy.

j. Melinda pays a monthly rent of $1,300, utilities included, for an apartment she rents in an old building.

Answer 1

(a) C, I

Consumption = 300,000 DVDs sold

Investment (Increase in inventory) = 500,000 - 300,000 = 200,000 DVDs

(b) Imports

Goods produced outside US by American-owned shop are excluded from US output, and are part of French output. So purchase of such a product by an American is Imports for US.

(c) NO

Pension payment is a transfer payment and not counted in GDP.

(d) Exports

(e) NO

Household work has no market value and excluded from GDP.

(f) NO

teel purchased as input is excluded because GDP considers only final value of goods and services.

(g) G

(h) I

The oven is fixed non-residential business investment.

(i) Import

Purchase of used goods made outside US is an import for US (but this is excluded from Italy's GDP).

(j) C