1. A restaurant with $1 million in annual sales has costs of $350,000 in wages, $450,000 for food, utilities and other supplies, and $100,000 in rent.
a. How much is this restaurant contributing to GDP?
b. How much is this restaurant contributing to each component of national income?
c. Suppose the restaurant raises its prices by 10 percent. If it sells the same amount of food at the new higher price and none of its costs change, how do the answers to (a) and (b) changes?
d. Suppose that, in addition to the other costs, the restaurant's building and kitchen equipment depreciates by $50,000 per year. Does that affect GDP, or some other aggregate?
2. What is an example of spending that is counted in GDP, but that arguably should not be? What is an example of spending that is not counted in GDP, but arguably should be?