problem_set_1 (nicks)

problem_set_1 (nicks) - Spring 2008 Professor Subhashini...

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Spring 2008 Professor Subhashini Muthukrishnan Department of Economics, Santa Clara University Nick Poggetti April 18, 2008 Economics 2 Problem Set 1 This problem set is an application of measuring the production, income and spending of nations. 1. Which spending categories of GDP (if any) would each of the following transactions affect? Explain. a) A family buys a new refrigerator . Consumption spending as a durable good- It is durable and is not frequently purchased. b) Aunt Jane buys a new house. This would be under investment spending, as a residential investment- She is buying a house and therefore is making a long term residential investment. c) Ford sells a Mustang from its inventory. “Change in Business Inventories” category under investment spending. To prove this you could look at the inventory before the sale and the inventory after and see a clear change. d) You buy a pizza. Consumption spending as a non-durable good, because you can purchase it frequently and lasts briefly.
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