Question

Ryan is a Canadian resident who lives with his family in Victoria, Canada, but works for a small donut cafe in Seattle, U.S., where he commutes every day. On a typical day, Ryan produces 400 donuts that sell for $1 apiece. Of the revenue from selling the donuts, Ryan is paid $200 per day. The remaining $200 revenue is distributed as follows: $50 pays for inputs such as water, flour, sugar, butter, and energy, $100 is rent for using the facilities and interest for an initial loan to start the business, and $50 goes to salary to the manager and profit to the owner of the cafe.

a) How much is the increase in U.S. GDP and GNP generated by the production of the 400 donuts?

b) How much is the increase in Canada's GDP and GNP generated by the production of the 400 donuts?

c) How much is Ryan's contribution to the creation of the $400 value donuts? Explain your answer.

d) Since Ryan takes his income home to Canada, should the U.S. allow foreign workers such as Ryan to take jobs that might otherwise go to American workers?

Answer 1

a) GDP is gross domestic product which is the value of goods and services produced within the domestic boundaries or geographical boundaries of the nation. Here GDP of US is $400.

GNP is gross national product ie the amount of goods and services produced within the country less than the net factor services from abroad.

In this case Ryan is taking home which is outside the country, his wages. This would be subtracted from GDP of US. so GNP of USA would be 400-200 = $200.

b)There will be no increase in GDP of Canada because no donut or its production takes place in Canada. on the other hand in case of GNP the net factor income from abroad is $ 200 which is bought in by Ryan. So the GNP of Canada increases by $ 200.

c)Ryan is earning $ 200 as income, so the value he gets for the doomists he produces. so his contribution is $200 to value creation. The rest $ 200 are not value added by him since it either cost of input or the rent.

d)yes, workers Should be allowed from other countries but only through legal ways Also though the job could have gone to American workers, probably they would have been underemployed or they might be having a higher opportunity cost. It depends on the still of the workers.

(you can comment for doubts)