Question

1. A company produces 100 cars in the year 2017 but only manages to sell 90 of the cars. In the year 2018 they sell the 10 cars that were not sold in the previous year to consumers. In which spending categories of GDP do we record the 10 cars?

A. The unsold cars count as inventory investment for 2017. 2018 GDP is not affected.

B.The unsold cars count as consumption spending in 2018.

C. The unsold cars count in the inventory investment category for both years and count as consumption spending in 2018.

2. Indicate whether each of the following affect consumption spending (C), investment spending (I), government spending (G), net export spending (NX), or none of the above (N).

Carmax sells a car to John:

The government sends a social security payment to your grandfather:

John spends his social security check on a new computer:

Publix buys 4 new computers:

You pay your tuition to UCF:

3. Suppose there is an increase in the average age at which people begin to retire.

In the labor market, you would expect the equilibrium wage to: ________ and the equilibrium quantity of labor employed to: _________

Please answer increase, decrease, or uncertain.

Answer 1

(1) (B)

The unsold cars in 2017 will be included in Gross Domestic Private Investment as unplanned inventory accumulation in 2017, and the 10 cars, when sold in 2018, will be included in Consumption in 2018.

(2)

(a) Carmax sells a car to John - N

(Carmax sells used cars, and used goods are excluded from GDP computation)

(b) Government sends social security payment - N

(Social security payment is a transfer payment by government which is excluded from GDP computation)

(c) John spends social security check on new computer - C

(d) Publix buys 4 new computers - I

(e) I pay tuition fee - C

(3)

Higher retirement age will increase labor supply, shifting labor supply curve rightward.

I would expect the equilibrium wage to decrease and the equilibrium quantity of labor employed to increase.