Which of the following are counted in GNP?
(a) Purchase of $2,000 of IBM stock.
(b) $3,000 payment to a lawyer to sue a neighbor to keep his dog quiet.
(c) $500 in unemployment compensation collected by an unemployed worker.
(d)$600 paid by a student for a used car.
(e) The purchase of a bottle of French wine.
(f) $5,000 earned by an American in
(g) $5 million worth of new computers produced by AT&T that AT&T can’t sell.
- Only b, f, and g are included in GNP. The other transactions do not reflect the production of goods and services by
Suppose GNP=$3,000, C=$2,400, G=$100 and NX(net export)=$80
(a) What is I?
(b) If exports equal $350, what are imports?
(c) If depreciation is $150, what is NNP?
(d) If taxes equal $200 and transfer payments equal $120, what is the deficit equal to? What are savings equal to?
(e) If indirect business taxes equal $70, what is national income?
(b) Imports = $270
(c) NNP=$2,850
(d) The deficit = $20, and savings = $520
(e) National income is $2,780
What are net exports equal to when GNP=$1,000, I=$100, C=$600, and G=$150? If taxes=$100 and there are no transfer payments, what do savings equal? And if imports equal $80, what do exports equal?
- Net exports = $150, savings = $300, and exports = $230
Indicate how the following will affect measured GNP and the national welfare:
(a) An oil spill occurs and is cleaned up at cost of $2 million.
(b) The government requires all house persons be paid for their work.
(c) The Army Corps of Engineers builds a dam at a cost of $5 billion that is worth only $2 billion.
(d) A teenager quits work and goes back to school, which she regards as much more worthwhile.
(a) Increases GNP, reduces national welfare.
(b) Increases GNP, had no effect on national welfare.
(c) Increases GNP, reduces national welfare.
(d) Decreases GNP, increases national welfare.
Should a welfare recipient’s payments from the government be included in GNP?
- No. The welfare recipient is not producing any goods or services for the welfare payment. The welfare payment is a transfer payment.
Suppose that savings are fixed at 15% of GNP. Also assume that net exports are zero. If the government’s deficit equals 5% of GNP, what percentage of GNP in investment?
- Investment plus the government’s deficit equals savings. So investment equals 10% of GNP.
A farmer grows corn, which she sells for $10; a miller buys the corn, grinds it, and sells it as corn meal for $15; a baker buys the corn mean and sells it as corn muffin for $22. How much was contributed to GNP in these transactions? What was the value added of each person?
- The final good sold for $22; this is the contribution to GNP. It also equals the sum of the value added: $10 for the farmer, $5 for the miller, and $7 for the baker.
An economy produces $15 billion in investment goods and $100 billion in consumption goods. All investment good were sold, but only $90 billion of the consumption goods were sold. There is no government or international trade. What was GNP? What was consumption and investment?
- GNP was $115 billion, the sum of output produced. Consumption was $90 billion (the amount households spent), while investment was $25 billion. $15 billion was for the investment goods produced. The other $10 billion of investment was the increased inventory due to the unsold consumption goods
In an economy, households consume $600 and save $400. The government spends $200 and taxes $150. There are no transfer payments or foreign trade. What is I? what is GNP?
- With no foreign trade or transfer payments, we have: (a) I + G - Taxes = Savings. So I = $350. (b) GNP = C + I + G = $1,150.
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