Abdul Basit

F2018214005

University of Management & Technology, Lahore

Quiz No. I GLOBAL POLITICAL ECONOMY
Date: 27-05-2023 Resource person; Dr. Farhat Rasul
Training Module: Developing Growth Strategies

Question NO. 1 (10)

In each of the following cases, determine how much GDP and each of its components is
affected (if at all).
A. Saba spends $200 to buy her husband dinner at the finest restaurant in Boston.

1. Consumption (C): Saba's expenditure on dinner falls below consumption. It

represents family spending on items and services. In this example, Saba's
spending on dinner is considered consumption expenditure. So, her expenditure of
$2 hundred contributes to the consumption element of GDP.

2. Funding (I): Saba's expenditure on dinner does now not fall beneath investment.
Investment consists of spending on capital items, inclusive of machinery,
buildings, and equipment, that are used to supply other items and services. For the
reason that dinner does not contribute to capital formation, it does now not have
an effect on the investment component of GDP.

3. Authorities Spending (G): Saba's expenditure on dinner does not fall under
authorities spending. Government spending represents the expenses made by the
authorities on public goods and services, consisting of infrastructure, protection,
and public management. As Saba is a personal man or woman, her dinner
expenditure does no longer affect the government spending aspect of GDP.

4. Internet Exports (NX): Saba's expenditure on dinner does now not directly affect
internet exports. Net exports represent the difference among a country's exports
and imports. Due to the fact Saba's expenditure is domestic intake, it does not
effect the internet exports element of GDP.
 5. Therefore, Saba's expenditure of $two hundred on dinner ordinarily affects the
intake aspect of GDP.

B. Sarah spends $1800 on a new laptop to use in her publishing business. The laptop
was built in China.

Whilst Sarah spends $1800 on a new pc to apply in her publishing enterprise, and the
laptop turned into built in China, it affects the components of GDP as follows:

1. Intake (C): Sarah's expenditure on the laptop falls beneath consumption. It

represents family spending on items and services. In this example, Sarah's
spending on the pc is taken into consideration intake expenditure. So, her
expenditure of $1800 contributes to the intake factor of GDP.

2. Investment (I): Sarah's expenditure at the laptop falls under investment. Funding
includes spending on capital items, consisting of machinery, homes, and device,
that are used to supply different goods and services. Because the computer is used
for her publishing enterprise, it contributes to the investment element of GDP.

3. Authorities Spending (G): Sarah's expenditure at the computer does not fall below
government spending. Authorities spending represents the expenditures made
with the aid of the government on public items and offerings. As Sarah is a non-
public character, her laptop expenditure does not affect the authorities spending
thing of GDP.

4. Net Exports (NX): Sarah's computer became constructed in China, so it

contributes to imports. Imports represent goods and offerings produced abroad
and purchased locally. Sarah's buy of the computer will increase imports and
negatively influences the net exports aspect of GDP.

To determine the overall effect on GDP, we need to recollect the distinction among the
expenditure on imports and exports. Considering we don't have facts approximately
different additives of GDP, inclusive of exports, government spending, and net exports,
it's not viable to decide the exact effect on GDP on this situation. However, Sarah's
expenditure on the pc will contribute undoubtedly to intake and funding even as
negatively impacting net exports.
 C. Jane spends $1200 on a computer to use in her editing business. She got last year’s
model on sale for a great price from a local manufacturer.

When Jane spends $1200 on a computer to use in her editing business, and she purchases last
year's model on sale from a local manufacturer, it affects the components of GDP as follows:

1. Consumption (C): Jane's expenditure on the computer falls under consumption. It

represents household spending on goods and services. In this case, Jane's spending on the
computer is considered consumption expenditure. So, her expenditure of $1200
contributes to the consumption component of GDP.

2. Investment (I): Jane's expenditure on the computer falls under investment. Investment
includes spending on capital goods, such as machinery, buildings, and equipment, which
are used to produce other goods and services. Since the computer is used for her editing
business, it contributes to the investment component of GDP.

3. Government Spending (G): Jane's expenditure on the computer does not fall under
government spending. Government spending represents the expenditures made by the
government on public goods and services. As Jane is a private individual, her computer
expenditure does not affect the government spending component of GDP.

4. Net Exports (NX): Since we do not have information about whether the computer was
produced domestically or imported, we cannot determine its impact on net exports. If the
computer was manufactured domestically, it would not affect net exports. However, if the
computer was imported, it would contribute to imports and negatively impact the net
exports component of GDP.

Therefore, Jane's expenditure of $1200 on a computer primarily affects the consumption and
investment components of GDP. Depending on whether the computer was domestically
produced or imported, it may also impact the net exports component.
D. General Motors builds $500 million worth of cars, but consumers only buy $470
million worth of them.

Whilst popular motors builds $500 million really worth of vehicles but clients only
purchase $470 million well worth of them, it impacts the additives of GDP as follows:

1. Intake (C): clients handiest purchased $470 million worth of cars, so this amount
contributes to the consumption factor of GDP. The consumption element represents
household spending on items and services. In this example, the customer spending of
$470 million on cars contributes to the intake thing of GDP.

2. Investment (I): trendy vehicles' production of $500 million well worth of automobiles
falls beneath investment. Investment includes spending on capital goods, inclusive of
machinery, homes, and gadget, used for generating other goods and offerings. Preferred
motors' production of automobiles contributes to the funding issue of GDP, irrespective
of whether or not all of the produced motors had been offered or no longer.

3. Authorities Spending (G): standard motors' vehicle production does now not directly fall
beneath government spending. Government spending represents the costs made through
the authorities on public items and offerings. As wellknown vehicles is a non-public
organization, its vehicle production does now not affect the authorities spending thing of
GDP.

4. Net Exports (NX): because we do not have statistics about the home versus global sales
of general cars' vehicles, we can not determine the impact on internet exports. If all $500
million well worth of cars have been sold locally, there could be no impact on net
exports. But, if a portion of the automobiles had been bought across the world, it would
have an effect on the net exports thing of GDP.

To determine the overall effect on GDP, we need to do not forget the distinction among
the whole manufacturing price ($500 million) and the quantity bought by purchasers
($470 million). The closing $30 million well worth of vehicles would be taken into
consideration as an growth in stock, which is a component of investment. It represents the
value of products produced but now not yet sold.

Consequently, the $470 million worth of automobiles bought by way of purchasers

contributes to the consumption aspect of GDP, the overall production price of $500
million contributes to the funding factor, and the $30 million increase in stock
additionally contributes to the investment factor. Depending on the home as opposed to
international income of the vehicles, it can effect the internet exports factor as nicely.