The following information applies to the small kingdom of Economic: • Goods purc

ID: 1220562 • Letter: T

Question

The following information applies to the small kingdom of Economic:

• Goods purchased by households: $5000 (25% durable; 75% non-durable)

• Imports: $200

• Homes purchased: $2500

• Transfer payments (in the form of a Welfare-type program): $500

• Additions to business inventories: $1500

• Total government spending (this amount includes the Welfare-type program): $2000

• Services purchased by households: $3000

• Exports: $100

• Purchases by firms of machinery and other items used in production: $1000

Calculate total (economic) investment for this economy.

Calculate GDP using the expenditure method for this economy.

Calculate government purchases (G) for this economy.

Total investment for the economy = Homes purchased + increase in business inventories + purchase of machinery by the firms

Total investment for the economy = 2500 + 1500 + 1000 = $5000

Note: it is assumed that homes purchased are new and built in the same financial year.

GDP by Expenditure method = Consumption + investment + government Purchase + (Export -import)

GDP by Expenditure method = (5000+3000) + 5000 + (2000 - 500) + (100-200)

GDP by Expenditure method = $14400

Government purchase = government spending - welfare payment = 2000 - 500

Government purchase = $1500

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