Question

1. Suppose a company produces some steel, which it sells to a car company for $5,000. The car company uses the steel to produce a car, which it sells for $15,000. Assuming that the car is a final good, these two transactions together will contribute how much to GDP for the current period?

$5,000

$20,000

$15,000

$10,000

2. Suppose that an Egyptian company opens a factory that produces televisions (with televisions being a final good) located in Spain. Any production that occurs at this factory will contribute to which country's GDP?

Spain.

Neither Egypt nor Spain.

Both Egypt and Spain.

Egypt.

3. Fill in the blank. If a household in a given country imports a good, this _____ that country's GDP.

decreases

has no effect on

increases

Answer 1

Explanation :

Question 1: If a company produces steel and sell it to car company for $5000 and car company used it as intermediate good and sell car at $ 15,000 .

As car is the final good ,and we all know that GDP include the value of final good and services so, GDP is equal to $ 15,000 .

Solution : it can be explained by two methods

1. Final output method : Value of final product is counted in calculating GDP.

So, in question car is final product then current year GDP is $ 15,000.

2. Value added method : It refers to value added at each stage is included while calculating GDP.

So value added at 1 stage is $5000 and 2 stage is 10,000(15,000-5,000) Then current year GDP is $ 15,000.

So, option c ) $15,000 is correct.

Question 2 : If Egyptian company opens a factory that produces television but located in Spain .Then,any production by this factory contribute the GDP of Spain

Reason : Because it is under the domestic teriority of Spain and GDP is gross domestic product measure value of final good and services in domestic teriority of the country .

so,option a) Spain is correct.

Question 3 .If a household in a country imports a good,this would decreased the country's GDP.

Reason : Because ,import is detucted while calculating GDP .As import of good is production of another country not home country .So, in home country ,if import occur value of GDP is decreased.

So, option a)decreased is correct.