Application Question: Explosion of Samsung Smartphone

Question:

During the second half of 2016, Samsung Electronics had put a new model of smartphone on the market. Unfortunately, many users reported its explosion so the company called back all these products from the world and kept them in the warehouse.

(a)    Should these called-back products be included in the Korea’s National Income in 2016? Explain.  (3 marks)

(b)   Give TWO reasons to explain why there were unfavorable effects on the Korea’s balance of payments even though no ‘net’ export of the products took place eventually.  (4 marks)

Samsung Electronics has established its company in Hong Kong. Suppose this regional company has the following employment:

I. It employs a Korean expert for three months in Hong Kong to conduct research.

II. It employs a Hong Kong citizen to work in the regional company for three years.

(c)    How do these two employments affect the Hong Kong’s GDP? Explain respectively.  (4 marks)

(d)    How do these two employments affect the Hong Kong’s balance of payments? Explain respectively.  (4 marks)

Answers:

a) It should be included. (1)

It is a kind of ‘increase in stocks’. (1)

There is a rise in investment expenditure.  (1)

b) There exists shipping and insurance costs. (1)

The imports of services increase. (1)

Some compensation is made to overseas wholesalers. (1)

The factor income to abroad rises. (1)

c)

I.

Although the Korean expert is not Hong Kong’s resident producing unit, the Samsung regional company is. (1)

It raises the Hong Kong’s GDP.  (1)

II.

Both of the employer and employee are Hong Kong’s resident producing unit. (1)

It raises the Hong Kong’s GDP.  (1)

d)

I.

It is part of factor income to abroad. (1)

It has an unfavorable effect on the current account and thereby the balance of payments. (1)

II.

Since it is part of domestic production, there is nothing to do with the external sector. (1)

It does not affect the balance of payments at all. (1)