Question

In the fictional country of Symposia, we have the following information for the year 2017:

*Consumers bought $2 billion dollars worth of goods and services, 20% of which were produced and initially sold in 2016.

*Labour wage income was $250 million in 2017*

*Businesses invested $100 million dollars in new capital (i.e. machinery) stock in 2017.

*Businesses also bought $200 million dollars worth of company stocks in 2017.

*Foreigners with working visas in Symposia lived in foreign-only households that bought $200 million worth of locally made goods and services in 2017.

*The government of Symposia bought $250 million worth of new ambulances for government run hospitals in 2017.

*Citizens of Symposia living overseas bought $100 million worth of Symposia goods.

1. Calculate and explain how you obtained the figure (i.e. what did you count, and what did you exclude) for Symposia’s consumption in 2017   

1. Calculate and explain how you obtained the figure (i.e. what did you count, and what did you exclude) for Symposia’s investment in 2017   

3. What was Symposia’s GDP in 2017? Explain your answer

Answer 1

1. Consumption or C is defined as personal consumption by consumers or spending done by consumers :

It will include the following:

Goods , Durable or Non-durable and Services

a) Consumers bought $2 billion dollars worth of goods and services ,  20% of which were produced and initially sold in 2016 = 0.8*2 = 1.6 Billion $

b) Foreigners with working visas in Symposia lived in foreign-only households that bought $200 million worth of locally made goods and services in 2017.

C = 1.6 + 0.2 = 1.8 Billion $

2.

Investment of Symposia will include Gross private domestic investment i.e spending by households and firms in purchasing new capital , plant , equipment , inventory and new residential structures .

i.e

Fixed Investment

Non residential

Structures

Equipment and Software

Residential

Change in private inventories etc

It will include : (I)

a) Businesses invested $100 million dollars in new capital (i.e. machinery) stock in 2017= $100 Million = 0.1 Million $

b) Businesses also bought $200 million dollars worth of company stocks in 2017 = $ 200 Million = 0.2 Million $

Government Spending and Investment will include (G) :

a ) *The government of Symposia bought $250 million worth of new ambulances for government run hospitals in 2017. = 0.250 Billion $

3.

GDP = C + I + G + NX

where C = Personal Consumption

I = Private Investment

G = Government Spending

NX = Exports- Imports

GDP = 1.8 + 0.1 + 0.2 + 0.25 + 0.1 = 2.45 Billion $