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ECON 5300 Homework Assignment # 4 Fall 2014




Question;Instructions: Answer any one of the first two questions (Q.1 and Q.2). You must answer Q.3. Youranswers should be precise and complete. Please show all your work to receive full credit. Uploadyour answers to the Attach File area of Homework Assignment 4. The assignment will be graded ona scale of 0-8 points. The maximum points for each question are in bracket.1. Which component of GDP will be affected by each of the following transactions involving the Ford Motor Company? If you believe that none of the components of GDP will be affected by the transactions, briefly explain why. (4 points)a) You purchase a new Ford Escape Hybrid from a Ford dealer.b) You purchase a 2008 Ford Escape Hybrid from a friend.c) Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana.d) Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer inShanghai, China.e) Ford purchases new machine tools to use in its Missouri Escape factory.f) The state of Missouri builds a new highway to help improve access to the Ford Escape plant.2. The residents of Kamrupa spend all of their income on cauliflower, broccoli, and carrots. In 2010, they buy 100 heads of cauliflower for $200, 50 bunches of broccoli for $75, and 500 carrots for $50. In 2011, they buy 75 heads of cauliflower for $225, 80 bunches of broccoli for $129, and 500 carrots for $100. (4 points)a) Calculate the price of each vegetable in each year.b) Using 2010 as the base year, calculate the CPI for each year.c) What is the inflation rate in 2011?


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