1.In each of the following cases, determine how much GDP and each of its components is affected.

(a)Dew spends $200 to buy her husband Mark dinner at the finest restaurant in Boston; Mark purchases a two-week trip to the Maldives costing him $2,000.

(2 marks)

(b) Sarah spends $1800 on a new laptop to use in her publishing business. The laptop was made in China.

(2 marks)

(c)Jane spends $1200 on a computer to use in her editing business. She got last year's model on sale for a great price from a local manufacturer.

(2 marks)

(d) General Motors builds $500 million worth of cars, but consumers only buy $470 million worth of them.

(2 marks)

[Total: 8 Marks]

2.You are selling your 2006 Toyota. You have already spent $1,000 on repairs. At the last minute, the transmission dies. You can pay $600 to have it repaired, or sell the car "as is." In each of the following scenarios, should you have the transmission repaired? Explain.

(a)Car's value is $6,500 if the transmission works, $5,700 if it doesn't.

(3 marks)

(b) Car's value is $6,000 if the transmission works, $5,500 if it doesn't.

(3 marks)

[Total: 6 Marks]

3.Outline the likely impact on China's investment, the level of economic growth and employment if the USA companies pull their production out of China? Explain your answer. (6 marks)

4.If the government spending decreases and tax increases and the private sector balance does not change, what will happen to net exports, GDP, and employment? Explain your answer.(6 marks)

5.Use the following information to work Problems (a) and (b). Show all your workings.

The people on Coral Island buy only wheat and cloth. Below are data on prices and quantities of both goods. The base year is 2018.

Year

Price

of Wheat

Quantity of Wheat

Price

of Cloth

Quantity

of Cloth

2018

10

50

40

25

2019

12

65

45

30

2020

13

63

45

35

(a)Compute the nominal GDP, the real GDP, and the GDP deflator for each year.

(6 marks)

(b)Compute the growth rate for each year and the average growth rate during the period of 2018 and 2020.