7 Suppose a 35000 Japanesemanufactured car is sold to a cons

7. Suppose a $35,000 Japanese-manufactured car is sold to a consumer in the U.S. in the same year it is produced. This transaction would a) lead to an increase in consumption and imports for the U.S. b) count in the GDP deflator for the U.S., but not the U.S. CPI. c) lead to a decrease net exports and GDP for Japan. d) All of the above.

Solution

a) lead to an increase in consumption and imports for the U.S. is the right option as buying car from the Japan ; US imports will increase and it will also be counted in consumption as it it directly ordered by the consumer.

c) is wrong as the car has been manufactured in the Japan which will be counted in GDP, so it will not decrease GDP.