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Homework National Income

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Homework National Income
Homework On National Income Answer Sketch for Selected Questions
Dr. Patrick Toche April 2, 2011

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Reference : Mankiw, Mankiw, Macro (7th), Chapter 2, Problem 4.

Suppose a woman marries her butler. After they are married, her husband continues to wait on her as before, and she continues to support him as before (but as a husband rather than as an employee). How does the marriage affect GDP ? What is your reaction to this ?

Hints : GDP is a measure of recorded transactions only, not of informal work. The services offered by the husband were recorded in GDP before the marriage, but not after the marriage. Marriage induces the spouse to withdraw from the labor force and reduces GDP.

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Reference : Mankiw, Macro (7th), Chapter 2, Problem 4. • Place each of the following transactions in one of the four components of expenditure. a. Boeing sells an airplane to the Air Force. b. Boeing sells an airplane to American Airlines. c. Boeing sells an airplane to Air France. d. Boeing sells an airplane to Amelia Earhart. e. Boeing sells an airplane to Jackie Chan. f. Boeing builds an airplane to be sold next year. a. Boeing sells an airplane to the Air Force. Hints : Government Spending b. Boeing sells an airplane to American Airlines. Hints : Investment c. Boeing sells an airplane to Air France. Hints : Export (From the United States to France) d. Boeing sells an airplane to Amelia Earhart. Hints : Consumption. Because Amelia Earhart is an American pilot resident in the US – Amelia Earhart, born July 24, 1897; missing July 2, 1937 – Only if she purchases the aircraft under her name; if she purchases on behalf of her company, then it is accounted as investment.

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e. Boeing sells an airplane to Jackie Chan. Hints : Export. Because Jackie Chan is a Hong Kong resident (as far as I know). An airplane is a big item requiring registration. If Jackie Chan buys a model airplane worth a few dollars while vacationing in the U.S., it would be classified as U.S.
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