5. Given the following data for an economy, compute the value of GDP . Note: The

Question

5. Given the following data for an economy, compute the value of GDP. Note: There may be more pieces of information than you need to answer this question. All numbers are in billions of dollars.

Consumption expenditures 1,000
Imports 625
Government purchases of goods and services       700
Construction of new homes and apartments 500
Sales of existing homes and apartments 600
Exports 500
Government payments to retirees 200
Household purchases of durable goods 300
Beginning-of-year inventory 500
End-of-year inventory 600
Business fixed investment 300
  

Explanation / Answer

ANSWER:

GDP = C + I + G + NX

C = Consumption expenditures + Household purchases of durable goods = 1000 + 300 = 1300

G = Government purchases of goods and services = 700

I = Construction of new homes and apartments + ( End-of-year inventory - Beginning-of-year inventory) + Business fixed investment = 500 + ( 600 - 500) + 300 = 500 + 100 + 300 = 900

NX = Exports - imports = 500 - 625 = -125

GDP = C + G + I + NX = 1300 + 700 + 900 - 125 = 2775

government payment to retirees and sales of exissting homes and apartments are not included in gdp.

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