Suppose that C = 800, I = 300, G = 200, and X = -100.

a. Calculate GDP.

b. Calculate each of the four components of GDP.

c. Suppose G increases to 300 and GDP increases to 1,500. What is the new government component?

Solutions

Expert Solution

Answer a) GDP is summation of consumption by households, investment by businesses, government spending on goods and services, and net exports, which are equal to exports minus imports of goods and services.

GDP = C + I + G + X

GDP = 800+300+200-100

GDP = 1200.

Answer b) Four components of GDP are discussed above which are consumption by households, investment by businesses, government spending on goods and services, and net exports, which are equal to exports minus imports of goods and services. Now each components value is given which are :

C = 800

I = 300

G = 200

X = -100

Answer c) As discussed earlier , here G refers to government expenditure in this part G rises by 300 , this refers to rise Government Expenditure . As the government expenditure rises due to multiplier effect gdp rises more than that of expenditure . Hence the new government component here is increse in government expenditure.

Rahul Sunny answered 1 year ago

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