Big Mine mining company operates a mine in Pennsylvania digging iron ore out of the ground. The mine and all of the equipment is worth $20M ($20,000,000). Big Mine paid $3M in wages, and $400,000 in taxes on production. Using this labor, it dug iron ore, all of which it sold to ABC Steel Company for $5M.

ABC Steel Co. has a $40M factory in Indiana. In that factory, ABC builds $7,000,000 worth of car parts. ABC's costs are labor ($1,000,000), interest on debt ($100,000), taxes ($200,000), and the $5M in iron ore that it bought from Big Mine. ABC sells all its output to The Supercar Company.

Using ABC's steel, Supercar Co. builds fourteen supercars in California at a cost of $800,000 each.This cost per car is composed of $500,000 worth of parts (bought from ABC), $200,000 in labor costs,and $100,000 in taxes on production of the car. (Assume these taxes are paid on all cars produced, regardless of if they are sold or not.)Supercar Co. has a $30M factory.Supercar sells ten of the cars they build to (rich) consumers for $1,000,000 each. At year's end, it has not sold four of the cars. The unsold car is held by Supercar Co. as inventory, with the hope they will sell them next year.

Questions

a.Using the expenditure approach, calculate the contribution to GDP of these transactions, detailing each component of expenditure. (I.e., C, I, G, and NX.)

b.Using the income approach, calculate the contribution to GDP of these transactions, detailing each component of income. (I.e., labor income, capital income, and government income.) (Hint: you should know something about the answer you get to parts (a) and (b).)

c.Repeat parts (a) and (b), but now assume that in addition to its other costs, Supercar Co paid $500,000 (total, not per car) for imported computer chips from China.