Question

Airbus (a European consortium) operates a plant in Alabama. To make a commercial

     aircraft, the plant purchases engines from a factory in Germany and instruments and

     assorted parts from aerospace companies in California. The Alabama plant

     manufactures the frame and assembles the aircraft. A typical Airbus plane which

     costs $40 mill contains $10 mill worth of engines and $18 mill worth of instruments

     and other parts. The value added by the Alabama plant makes up the remaining $12

     mill.

  

     Suppose that a total of 10 planes are made in the Alabama plant. Five of them are sold

     to domestic U.S. carriers and the other 5 are sold to carriers in E. Asia. How would

     U.S. GDP and its components be affected by the production of these 10 Airbus

     planes in Alabama? (8 pts) Note: Alabama and California are states within the United

     States.

Answer 1

Given that Alabama and California states within the United States the GDP will be added up. The 10 planes made in Alabama Plant Costs 10*40=$400 mill is the total output value produces in Alabama. Given that the engine of the aircraft imported from Germany. So the import value is 10*10=$100 mill also given that 5 aircraft sold to E. Asia i.e it will come under U.S export. So the Export value becomes 40*5=$200 mill. U.S sells 5 aircraft for domestic use with a value of $200.

So the GDP will be=200+(200-100)=200+100=300

Hence the planes made in Alabama plant will increase U.S GDP with changes in consumption, import and export.