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Chapter 8: Q.22 (page 188)
In Problem 8-21, what is the net investment?
The net investment istrillion.
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Suppose that in 2019, geologists discover large reserves of oil under the tundra in Alaska. These new reserves have a market value estimated at \(50 billion at current oil prices. Oil companies spend \)1 billion to hire workers and move and position equipment to begin exploratory pumping during that same year. In the process of loading some of the oil onto tankers at a port, one company accidentally spills some of the oil into a bay and by the end of the year pays $1 billion to other companies to clean it up. The oil spill kills thousands of birds, seals, and other wildlife. What was the combined effect of these events on GDP for this year? (Hint: Which transactions took place in the markets for final goods and services?) In what ways, if any, does the effect on GDP reflect a loss in national welfare?
Suppose that early in a year, a hurricane hits a town in Florida and destroys a substantial number of homes. A portion of this stock of housing, which had a market value of \(100 million (not including the market value of the land), was uninsured. The owners of the residences spent a total of \)5 million during the rest of the year to pay salvage companies to help them save their remaining belongings. A small percentage of uninsured owners had sufficient resources to spend a total of \(15million during the year to pay construction companies to rebuild their homes. Some were able to devote their own time, the opportunity cost of which was valued at \)3 million, to work on rebuilding their homes. The remaining people, however, chose to sell their land at its market value and abandon the remains of their houses. What was the combined effect of these transactions on GDP for this year? (Hint: Which transactions took place in the markets for final goods and services?) In what ways, if any, does the effect on GDP reflect a loss in welfare for these individuals?
Why do you suppose that many economists worry that including the degree of depletion or pollution of natural resources could make the value of GDP harder to interpret?
Why might a range of dashboard economic indicators be difficult to include in one single measure such as GDP?
Suppose that U.S. consumption spending is \(13 trillion, gross private domestic investment is \)3.5 trillion, government spending is \(4 trillion, and net exports are \)0.5 trillion. If interest income is \(1 trillion, depreciation is \)0.5 trillion, wages are \(12 trillion, and rental income is \)0.75 trillion, what is the net domestic product?
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