1.1 1.2 1.3 Accounting How does GDP accounting record the following events? For each of them, describe how they would be computed in GDP accounts using the income method, the production method and the expenditure method. (a) A car manufacturer buys components from Japan for $1 to be used in production later on and stores them at its warehouse. (b) A car manufacturer buys components from Japan for $1 and uses half of those com- ponenets in the production of a car, that it sells to Andy for $2. It stores the rest of the components. (c) An army batallion is deployed to the border to repel a threatened Canadian invasion. rI'he soldiers earn wages of $10,000 and use ammunition that the government bought for $5,000. The ammunition was produced using $2,000 of imported steel and 100 hours of work, for which the workers were paid $1,000. (d) Walmart sells 1000 bottles of Coca-Cola for $1,500. It had paid $1,200 for them. (e) A shipyard builds a cruise ship. It pays wages of $200,000, interest on loans (from US residents) of $100,000 and $300,000 for imported raw materials. rI'he ship is sold for $1,000,000 to a cruise company. In the same year, the cruise company has revenue for $50,000 from operating cruises, pays wages of $20,000 to its workers and has no other expenses. Half the cruise revenue comes from tourists who reside in the United States and half comes from tourists who reside abroad. (f) The government collects $1000 in income taxes from Pam. (g) Pam earns $4000 for working as a babysitter and pays $1000 in income taxes. Drugs and Prostitution Read the following article. http: / /www.economist.com / news / nance-and-economics/ 21603073- italysinclusionillicitactivitiesitsgures-excites-muchinterestsex. What do you think? Should drug production and prostitution be included in the calculation of GDP? Changes in Relative Prices We saw using an earlier year as the base year to compute real GDP results in a rate of growth if the sectors that are expanding most are those whose relative price is falling. Can you think of reasons why that should be the case (i.e., economic forces that make the same types of goods become relatively cheaper and be produced in higher quantities)? Can you think of reasons why the opposite should be the case (i.e., economic forces that make the same types of goods become relatively expensive and be produced in higher quantities)