Category Amount Durable Goods $1,000 Non-Durable Goods 2,500 Services 7,000 Fixe
ID: 1168935 • Letter: C
Question
Category Amount
Durable Goods $1,000
Non-Durable Goods 2,500
Services 7,000
Fixed Investment 1,800
Changes to Business Inventory 35
Investment in Stocks & Bonds 5,500
Federal Government Purchases 1,200
State/Local Government Purchases 1,800
Transfer Payments 575
Exports from the United States 2,000
Imports into the United States 2,600
Using the above table determine the amount added to GDP by calculating the amount added to each of GDP’s categories (Consumption, Investment, Government Expenditures, and Net Exports).
Explanation / Answer
By expenditure method of GDP
GDP = Consumption + Investment + Government Expenditures + Exports - Imports
Consumption = Durable Goods + Non-Durable Goods + Services
Hence Consumption = $1,000 + $2,500 + $7,000 = $10,500
Private Investment = Fixed Investment + Changes to Business Inventory = $1,800 + $35 = $1,835
Public Investment = Federal Government Purchases + State/Local Government Purchases = $1,200 + 1,800 = $3,000
Investment = Private Investment + Public Investment = $1,835 + $3,000 = $4,835
Investment in Stocks and Bonds is not counted in GDP as it would be a double count if we count both fixed investment and stocks. (Companies using stock money to pay for investment)
Transfer payments are not included because they are a means to allocate money and not payment for services.
Net Exports = Exports - Imports = $2,000 - $2,600 = - $600
Net Exports = -$600
Hence GDP = $10,500 + $4,835 - $600 = $14,735
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