Category Amount:: Durable Goods $1,000, Non-Durable Goods 2,500, Services 7,000,

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

Consumption, C = durable goods + non-durable goods + services

= $(1,000 + 2,500 + 7,000) = $10,500

Private investment, I = Fixed investment + change in inventory + Investment in stocks/bonds

= $(1,800 + 35 + 5,500) = $7,335

Government spending, G = Federal government purchase + state/local government purchase

= $(1,200 + 1,800) = $3,000

[Note: Transfer payments are not included in GDP since these are only allocation of resources among individuals]

Net exports = Exports - Imports = $(2,000 - 2,600) = - $400

So,

GDP = C + I + G + NX

= $(10,500 + 7,335 + 3,000 - 400)

= $20,435

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