Im looking for an easy correct answer 1. How would each of the following transac
ID: 1094187 • Letter: I
Question
Im looking for an easy correct answer
1. How would each of the following transactions affect the GDP of Canada? LO1 a. The Canadian government pays $1 billion in salaries for government workers. b. The Canadian government pays $1 billion to Employment Insurance beneficiaries. c. The Canadian government pays a Canadian firm $1 billion for constructing an airport d. The Canadian government pays $1 billion in interest to holders of Canadian government bonds. e. The Canadian government pays $1 billion to a U.S. firm for military aircraft.Explanation / Answer
Gross Domestic Product (GDP)
GDP is the composition of consumption, government expenditure, investment, and net exports. GDP can be calculated by three methods such as expenditure method, product method, and income method.
a.
Under income method, national income will measure based on the flow of income among four factors of production labor, capital, land and entrepreneurship. Where labor gets wages and salaries, capital gets interest, land gets rent and entrepreneurship gets profit.
Hence, if the Canadian government pays $1billion as salaries for government workers, then it will be added in the GDP of the country.
b.
Monetary transection for productivity purpose only adds to the national income. Paying an amount to the employment insurance beneficiaries does not contribute in the production process. Hence, the transaction will not be added to the GDP of the country.
c.
Paying $1 billion to a firm for constructing an airport is an investment, which is a composition of GDP. Hence, it will be added to the national income of the country; as a result, GDP of the country will increase.
d.
Paying interest to the capital is a payment for the factor for using in the production process. Hence, a government pays interest to the government bond holders will be added to the GDP of the country.
e.
GDP measures the total output produced within the territory of a country, whether it is produced by that country's own local firms or by foreign firms. If Canadian government pays $1billion to a U.S firm for constructing military airport in Canada, then it will be included in the GDP of the domestic country. Hence, paying $1billion to a U.S firm will be included in Canada