Question

1. What components of final expenditure (C, I, G, NX) if any, would the following transactions change? (provide numerical values for parts g and k)

g. You buy a house built in 2000. The house cost $120,000 in 2000, your purchase price is $200,000, of which $10,000 goes to a real estate agent as sales commission.

h. U.S. government spending for unemployment benefits increases because of increasing unemployment.

j. Ben and Jerrys buy milk to make ice cream.

k. You buy $20 of yarn at a craft store. You use the yarn to make a sweater, which would cost $80 if sold at Target.

m. Fifth third bank lends a manufacturer $1,000,000.

o. Wildfires destroy homes in California (do not count the cost of fighting the fires).

Answer 1

C = Consumption

I = Investment

G = Government Expenditure

NX = Net Exports

g) There is an Investment (I) of $1,90000 and consumption (C) of $10,000 which goes to real estate agent.

h) The Government Spending (G) increases.

j) Consumption (C) expenditure changes.

k) Consumption (C) changes by 80 - 20 = $60. $20 goes for raw material used in manufacturing of finished goods, ie. sweater. So there is duplication of $20 in the finished goods, sweater.

m) Investment (I) increases by $1000000.

o) Investment (I) reduces as the homes are destroyed.