1. An American farmer sells a truckload of sugar cane to an American sugar renery for $200.

The renery extracts the sugar from the sugar cane and sells it to Coca-Cola for $350. Coca-

Cola uses the sugar in its bottling plant in Toronto, Canada and the resulting Cola is sold

in Canada for $575. How will this string of transactions affect U.S. GDP? How will it aect

U.S. GNP? How will it aect Canadian GNP and GDP?

2. Place each of the following transactions in one of the four components of expenditure: consumption, investment, government purchases, and net exports

(a) Boeing sells an airplane to the Air Force

(b) Boeing sells an airplane to American Airlines

(c) Boeing sells an airplane to the Air France

(d) Boeing sells an airplane to Amelia Earhart

(e) Boeing builds an airplane to be sold next year.

3. Suppose the government decides to decrease taxes in an effort to increase consumer spending and investment in the economy.

(a) Will this plan succeed in accomplishing both goals?

(b) In equilibrium, what happens to interest rates as a result of this action?

(c) Would you characterize this as a case of fiscal crowding out? Explain.