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 fire. In total, the government spends 2K dollars for this emergency housing of 5 homeholds whose residences are destroyed in 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.
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 fire. In total, the government spends 2K dollars for this emergency housing of 5 homeholds whose residences are destroyed in fire. Calculate the
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