Question

1. In each of the following scenarios, calculate the total increase in US GDP this year caused directly by the given information

   1. An individual purchases an old used car from their friend for $6,000. They buy a new engine for the car for $1,000, replace the brakes for $500, and paint it for $200. They then sell the car for $10,000

   2. A computer manufacturer in the US buys parts for its computer from Japan. The cost of these parts is $500. It produces and sells a computer for $700 using these parts.

   3. A child is running a lemonade stand. They purchase 20 lemons for $3 each and 500 grams of sugar for $0.01 per gram. Using these ingredients, they make and sell 50 cups of lemonade for $2 each and at the end of the day they have 5 lemons and 100 grams of sugar remaining (that they do not sell and eventually consume themselves).

   4. A video game company prints 2 million copies of a game that sells for $60. It sells 1.8 million of these this year and the remainder the following year.

   5. A sandwich shop buys $1000 of ham, $500 of cheese, and $300 of bread. It also buys a new meat slicer for $300. Using these, it produces and sells $2000 of sandwiches. There is no ham or cheese remaining after production, but the meat slicer is still in perfect condition.

Answer 1

1. Increase in GDP = Selling price of the car - (purchasing and repairing costs) = $10,000 - ($6,000+$1,000+$500+$200) = $10,000 - $7,700 = $2,300

2. Increase in GDP = Selling price of the computer - (purchasing cost of the parts) = $700-$500 = $200

3. Increase in GDP = Selling price of 50 cups of lemonade - (purchasing cost of 20 lemons and 500 grams of sugar) = $2*50 - (20*$3 + 500*$0.01) = $100 - ($60+$5) = $35

4. Increase in GDP (this year) = Total value of 1.8 million video games = 1.8*$60 = $108 million

5. Increase in GDP = Value of sandwiches - (total value of ham, cheese, bread and meat slicer) = $2,000 - ($1,000+$500+$300+$300) = - $100