Question

short answer

2. Ryan is a Canadian resident who lives with his family in Victoria, Canada, but works for a small donut cafe in Seattle, U.S., where he commutes every day. On a typical day, Ryan produces 400 donuts that sell for $1 apiece. Of the revenue from selling the donuts, Ryan is paid $200 per day. The remaining $200 revenue is distributed as follows: $50 pays for inputs such as water, flour, sugar, butter, and energy, $100 is rent for using the facilities and interest for an initial loan to start the business, and $50 goes to salary to the manager and profit to the owner of the café.

a)         How much is the increase in U.S. GDP and GNP generated by the production of the 400 donuts?

b)         How much is the increase in Canada’s GDP and GNP generated by the production of the 400 donuts?

c)         How much is Ryan’s contribution to the creation of the $400 value of donuts? Explain your answer.

d)         Since Ryan takes his income home to Canada, should the U.S. allow foreign workers such as Ryan to take jobs that might otherwise go to American workers?

           

Answer 1

a. USA GDP is increasing by $400. $200 is going out to Canada as remittance.

GNP= GDP+Income received from abroad- income sent abroad.

GNP is increasing by $200 as that income stays in USA.

b. Canada's GNP increases not GDP as goods are made in USA. GNP goes up by $200.

c. Ryan's contribution is worth $200 as Ryan is paid $200.

d. It is true that money goes out but it is also rue that $200 stays in USA and USA economy grows with this. This also creates jobs in other sectors.