Problem 3 Consider the following hypothetical data for the U.S. economy in 2016

Question

Problem 3

Consider the following hypothetical data for the U.S. economy in 2016 (all amounts are in trillions of dollars). See pages 171 - 174.

                       

Consumption

14.0

Indirect business taxes

1.1

Depreciation

1.8

Government spending

5.2

Imports

3.8

Gross private domestic investment

6.4

Exports

2.9

a. Based on the data, how much is Gros Domestic Product (GDP)?

b. Based on the data, how much is Net Domestic Product (NDP)?

Consumption

14.0

Indirect business taxes

1.1

Depreciation

1.8

Government spending

5.2

Imports

3.8

Gross private domestic investment

6.4

Exports

2.9

Explanation / Answer

The formula for GDp calculation is as follows

GDP = C+G+I+(X-M), where C stands for consumption, G for government spending, I for Gross investment and (X-M) denotes net exports of the economy

= 14+5.2+6.4+2.9-3.8

=24.7

NDP = GDP-Depreciation

=24.7-1.8

=22.9

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