Question

For the following items, follow the directions, write the correct answer in the blank, or circle the correct answer.

Having applied for a job at the Commerce Department’s Bureau of Economic Analysis, you are given the following hypothetical data to study before your interview.  Figures are total value in billions of dollars.

Household spending on:

            Services                                                =          $3,008

            Nondurable goods                                =          $1,776

            Durable goods                                      =            $706

Business spending on plant and equipment        =             $815

Wear and tear on factory equipment                 =            $200

Inventory changes                                             =                $9

New homes constructed                                    =           $397

Existing homes which were destroyed                =           $123

State and Local Government spending on:

                        Consumption                            =           $540

                        Investment                               =           $113

Federal Government spending on:

                        Consumption                            =            $691

                        Investment                               =            $132

Depreciation of government assets                    =            $245

Transfer Payment                                             =          $2,936

Imports                                                            =            $855

Exports                                                             =            $961

1. What is the total value of consumption spending in this economy?

_________5490_____________________________________________________________________.

2. What is the total value of net private investment spending in this economy?

_______1221_______________________________________________________________________.

3. What is the total value of government purchases in this economy?

______________________________________________________________________________.

4. What is the total value of net exports in this economy?

______________________________________________________________________________.

5. Using the expenditure approach, what is GDP for this economy?

______________________________________________________________________________.

6. Which entries in the table are not counted as part of the economy’s GDP? _________________

______________________________________________________________________________.

Answer 1

A) The consumption spending implies private household consumption and it includes all private purchases of durable goods, nondurables, and services. Therefore, consumption spending = $(3008+1776+706) = $5490

B) The gross private domestic investment reflects the amount of a nations' economic activity.  It includes Non-residential investment such as Expenditures by firms on capital such as plants and equipment, Residential Investment, and change in inventories. Net private investment equals Gross private investment less the replacement investment that is the depreciated capital goods. So, Net private investment = $(815+9+397-123-200) = $898

C) Value of government purchases is given by the sum of government purchases of both state and federal governments. Total Value = $(540+113+691+132) = $1476

D) Net Exports = Exports - Imports = $(961-855) = $106

E) GDP = Consumption Spending + Gross private domestic investment + government purchases + Net Exports

= $5490 + $815+ $9+ $397 + $1476 + $106 = $8293

F) Entries not part of the economy's GDP are Transfer Payments, Wear and tear on factory equipment, Existing homes which were destroyed, and Depreciation of government assets.