Categories of expenditures Rajiv and Simone Bertolli live in Swarthmore, PA. The
ID: 1192315 • Letter: C
Question
Categories of expenditures
Rajiv and Simone Bertolli live in Swarthmore, PA. Their son, Yakov, owns his own plumbing business.
For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply.
Transaction
C
I
G
X
M
Categories of expenditures
Rajiv and Simone Bertolli live in Swarthmore, PA. Their son, Yakov, owns his own plumbing business.
For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply.
Transaction
C
I
G
X
M
Rajiv's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing facility in China. Simone buys a new BMW, which was assembled in Germany. The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Rajiv and Simone's house. Simone gets a haircut. Yakov buys a new set of tools to use in his plumbing business.Explanation / Answer
Gross domestic product (GDP): This is the value of finished goods produced in a year within the country’s boundary.
1. Providing consulting service is part of his job for which he receives salary. Therefore, it should not be included in US GDP.
2. Purchasing a new car from abroad is to be considered as import (M).
3. Expanding the runway is government purchases (G), since this is a part of government activity.
4. Getting a haircut is consumption (C), since the required payment is made by the consumer.
5. Buying a new tool is investment (I), since the amount of expenditure is high and it develops the business.
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