Question

A California farmer produces 10,000 bunches of grapes. He sells 4,000 bunches to Albert's Sons Food Stores (a supermarket chain), 5,000 bunches to Boone's Mounds (a local producer of cheap wine), and 1,000 bunches to the local city council (for use in their Annual Dionysian Festival), at a price of $3/bunch. The Albert's sells the bunches of grapes to the general public at a price of $4/bunch. Boone's crushes the grapes into wine (assume this is the only ingredient) and is able to make 5,000 bottles of wine, worth $5/bottle. While production was under way, the grape crushing machine broke down, and they were forced to buy a new machine from a French company for $1,000. Boone's sells 3,000 bottles to domestic consumers, 1,000 bottles to Canadian customers, and the rest of the bottles are left "to age" in their wine cellars.

Which of the following should be included in the Investment part of the expenditure method of calculating GDP? Select ALL that apply

	A.	-$1,000 for the purchase of the grape crushing machine
	B.	$1,000 for the new grape crushing machine
	C.	$15,000 for sales by Boone's to domestic consumers
	D.	$5,000 for the bottles of wine left in Boone's wine cellars
	E.	$5,000 for the wine sold by Boone's to Canadian customers
	F.	$30,000 for grape production by the farmer
	G.	$12,000 for the farmer's grape sales to Albert's Sons
	H.	$16,000 for sales of grapes to the public by Albert's Sons
	I.	$15,000 for the farmer's sale of grapes to Boone's Mounds
	J.	$3,000 for the purchase of grapes by the city council

Answer 1

Investment component of the gross domestic product includes the purchase of new machinery, building, and equipments, purchase of new residential buildings, and the change in inventories (stock of finished goods held as stock).

So, based on the above description of the investment component following would be included in this component -

1. The purchase of new grape crushing machine for $1,000.

2. The Boone's Mounds has kept 1,000 bottles of wine (finished good) in the stock. The cost of wine is $5 per bottle. So, the finished good stock kept by the firm values $5,000.

Hence, the correct answer is the option (B) and (D).