Short Answers

1. If part of GDP, label which type of spending it is, If not, explain why it is not part of GDP.

A. McDonalds (US firm) buying new playground structures from a US company for use its restaurants.

B. A US company has 40 bullet proof vests in unsold inventory at the end of the year.

C. The US secret service buying bullet proof vests from a US company.

2. In a given country:

Consumer spending= 70M     Investment spending= 40M

Capital inflows= 25M         Government spending=60M

Private saving=30M          Imports=60M

Exports=30M            

A. Calculate this country's GDP.

B. Does this country have a government deficit or surplus? Calculate it given the above information.

3. The interest rate is 5%. A firm's projected revenue from a project is $100M and the project costs are $97M

A. Calculate this firm's rate of return.

B. Should the firm proceed on this project given the above information? Why or why not?

4. A. Explain what a discouraged worker is and how they are included in the unemployment calculation.

B. How do discouraged workers impact the unemployment rate when the country initially starts moving out of a recession and into an expansion? Explain.