Question

1. In the country of Classica, we have the following information for the year 2012: *Consumption stood at $1 billion dollars worth of new goods and services, 20% of which were bought by foreigners residing there. *New housing stock worth $100 million was sold. *Company profit totalled $200 million. *Businesses bought $150 million dollars worth of bonds. *The government of Classica bought $200 million worth of guns for the military. *Citizens of Classica living overseas bought $50 million worth of goods from Classica.

i. Calculate and explain how you obtained the figure (i.e. what did you count, and what did you exclude) for Classica’s consumption in 2012

ii. Calculate and explain how you obtained the figure (i.e. what did you count, and what did you exclude) for Classica’s investment in 2012

iii. What was Classica’s GDP in 2012? Explain your answer                   

Answer 1

First of all we have to understand each item given properly

*Item 1:Consumption stood at $1 billion dollars worth of new goods and services, 20% of which were bought by foreigners residing there.( consumption)

1 billion $=1000 million $

20% of 1000 million $ is consumption by foreigners, which is equal to 200 million $, can be considered as Export.

Consumption by people of classica-80%of 1000 million $=800 million $

*Item 2:New housing stock worth $100 million was sold.(Investment)

*Item 3:Company profit totalled $200 million.(investment )

*Item 4:Businesses bought $150 million dollars worth of bonds.(Investment)

*Item 5.The government of Classica bought $200 million worth of guns for the military.(Govt expenditure )

. *Item 6:Citizens of Classica living overseas bought $50 million worth of goods from Classica.(can be considered as Import)

i. Calculate and explain how you obtained the figure (i.e. what did you count, and what did you exclude) for Classica’s consumption in 2012

*Item 1:(+) Consumption by people of Classica. :800 million $

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Classsica's consumption in 2012. :800 million $

ii. Calculate and explain how you obtained the figure (i.e. what did you count, and what did you exclude) for Classica’s investment in 2012

Answer :

*Item 2:New housing stock sold. :100 million $

*Item 3:Company profit. :200 million $

*Item 4:Businesses bought bonds. :150 million $

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Classsica's investment in 2012. :450 million $

iii. What was Classica’s GDP in 2012? Explain your answer   

GDP =C+ I+G+Net export   

C=800 million $(from answer i.)

I=450 million $(from answer ii.)

G=200 million $(from item 5)

Net export=200million $-50 million $=150 million $(from item 1&item 6)

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GDP =800+450+200+150=16000 million $