Q.6(10 points)Smith, a U.S. citizen, has been working as an executive of atelecommunication company in U.S., and her annual salary in 2014 was US$170,000.Her salary was expected to remain unchanged if she continued to work in the company. At the end of the year 2014, however, she was recruited by a media company in Brazil, so she started working in Brazil from January 2015, making an annual salary of US$190,000.Assuming that the amount of her salary equals the amount of her contribution to the production in the company she works for, how much the annual U.S. GDP and GNP in 2015 was changed due to her job relocation?Clearly show the reasoning for your answer.

Answer:

GDP is the value of all final goods and services produced within a country in a unit period of time. Y= C+I+G+NX=C+I+G+(Ex-Im)

GNP is the value of all final goods and services produced by citizens of the country in a unit period of time. GNP= GDP- factor income earned by foreigners working in the country + factor income earned by the citizens working abroad.

Smith's income decreases the GDP of U.S. by $170,000 because the salary accounts for the output made out of U.S (in Brazil) in 2015 (Remain unchanged if she continued to work in the company, so salary is $170,000).The GNP of U.S. equals the GDP plus factor incomes of U.S. citizens generated in foreign countries minus factor incomes of foreigners generated in U.S.The $190,000 salary paid to the Smith constitutes a factor income of U.S. citizens generated in foreign countries. Therefore, the Smith's income will increase $20,000 the GNP of U.S.