Identify how the following transactions affect current year’s Australian GDP andGNP. Briefly explain. (3 points each)a) A jar of Vegemite (produced by Kraft, a US company) is produced in PortMelbourne and sold in Darwin.b) The Australian government spends $400 billion, of which $50 billion are for theconstruction of schools, $80 billion for the construction of highways, 120$ billionfor the purchase of French submarines, $30 billion for unemployment benefits,$50 billion in wages for public servants, and $70 billion for hospitals and otherhealthcare.c) An Australian citizen living in France purchases real estate in the outskirts ofParis.d) Bluescope Steel, an Australian company, produces $150 million worth of steelbut is only able to sell $100 million worth to customers, with the remainingsteel stored in the Bluescope warehouse.Macroeconomic Analysis (ECON7074) Page 1 of 4

a) The production of the Vegemite jar contributes to Australia's GDP because it is produced within the country's borders. The fact that Kraft is a US company does not affect this because GDP is based on location, not nationality. However, the profits from the sale may contribute to the US GNP (Gross National Product) if they are repatriated back to the US.

b) All government spending is part of the GDP. The $400 billion spent by the Australian government will increase the GDP. However, the$120 billion spent on French submarines will be part of France's GDP, not Australia's, because the goods are produced in France. Unemployment benefits and wages for public servants are also part of GDP as they are part of government spending. The $70 billion for hospitals and other healthcare is also part of GDP as it is part of government spending.

c) The purchase of real estate in France by an Australian citizen does not affect Australia's GDP because the transaction occurs outside of Australia. However, it does affect Australia's GNP because the citizen is Australian.

d) The production of $150 million worth of steel contributes to Australia's GDP. However, only the$100 million worth of steel that is sold will contribute to the GDP in the current year. The remaining $50 million worth of steel stored in the warehouse will contribute to the GDP in the future when it is sold.

a) The production of the Vegemite jar contributes to Australia's GDP because it is produced within the country's borders. However, it does not affect the GNP because the profits go to a foreign company, Kraft.

b) The $400 billion government spending contributes to the GDP as it is part of the government expenditure. However, the$120 billion spent on French submarines will not contribute to the GDP as it is an import. The $30 billion spent on unemployment benefits is a transfer payment and does not contribute to the GDP. The rest of the spending ($50 billion on wages, $70 billion on healthcare,$50 billion on schools, and $80 billion on highways) contributes to the GDP as it is spent on goods and services produced within the country.

c) The purchase of real estate in France by an Australian citizen does not affect Australia's GDP as it is not within the country's borders. However, it does contribute to the GNP as the income is earned by an Australian citizen.

d) The production of $150 million worth of steel contributes to the GDP as it is produced within the country. However, only the$100 million worth of steel sold will contribute to the GNP as it is the income earned by the Australian company. The remaining $50 million worth of steel stored in the warehouse is considered inventory investment and also contributes to the GDP.