Consider the following economy. In year 1, there are 40 identical homes occupied by the residents. Ten out of 40 homes are rented, and the remaining 30 are owner-occupied. The annual rent for each home is K dollars (where K stands for thousand). In the same year, 10 additional homes are built, however, they are not sold or occupied, in the country. The price of a newly constructed home in Year 1 is 50K dollars. In Year 2, there is a total of 50 occupied homes in the country of which 20 is rented and the remaining 30 is owner-occupied. The rent on a rental home decreases by 20% to 0.8K dollars. In year 2, there is no new construction. In year 3, there is a fire that destroys 5 owner-occupied homes so that only 45 homes are occupied. The annual rent increases back to K dollars per home. There is no new construction in Year 3. However, the government puts a big tent to shelter those who lost their homes in the fire. In total, the government spends 2K dollars for this emergency housing of 5 home holds whose residences are destroyed in a fire. Calculate the GDP in each year using the expenditure method. Make sure that you clearly explain which type of expenditure changes and why it changes in a particular year.

Answer rating: 100% (QA)

GDP C I G NX As per the data the net exports NX are ... View the full answer