A Manitoba farmer buys a new tractor made in Alberta by a German company. What is the impact on investment and GDP?
A) Canadian investment and German GDP increase, but Canadian GDP is unaffected.
B) Canadian investment and GDP increase, but German GDP is unaffected.
C) Canadian investment, Canadian GDP, and German GDP are unaffected, because tractors are intermediate goods.
D) Canadian investment, Canadian GDP, and German GDP all increase.

Question

Quizplus · Accepted Answer

Canadian investment increases because the farmer has acquired a new piece of capital equipment, contributing to the country's capital stock. Canadian GDP also increases because the tractor, despite being produced by a German company, was made in Alberta, contributing to Canada's domestic production. German GDP is unaffected in this transaction because the production occurred in Canada, not Germany.

A Manitoba Farmer Buys a New Tractor Made in Alberta