Question

Consider a country with consumption expenditures, private investment expenditures, government purchases, imports, and exports as summarized in the table below (each measured in millions of dollars):

Consumption expenditures	Investment expenditures	Government purchases	Imports	Exports
$797	$112	$235	$86	$104

For this country, “Gross Domestic Product (GDP) ” is equal to

Question 20 options:

	1) $18 million
	2) $234 million
	3) $1,334 million
	4) $1,162 million

Answer 1

Gross Domestic Product (GDP) is the sum of the market value of all goods and services produced within the domestic territory of a country during a year.

GDP can be calculating by Product Method, Income Method and Expenditure Method.

Under product method the GDP is calculated by adding the value added by different producing units in an economy.

Under Income Method GDP is measured in terms of factor payments (compensation of employees, rent interest and profit)

Under expenditure method the GDP is measured in terms of total expenditure on the purchase of final goods and services during an accounting year. Total expenditure in an economy consist of private final consumption expenditure(C), government final consumption expenditure(G), Investment expenditure (I) and net export(X-M).

In the given question total expenditure is given. Then GDP can be calculated by expenditure method. Thus GDP is equal to C+I+G+(X-M).

GDP = C=$797+G=$235+I=$112+X-M=$18($104-$86)=$1162

Answer: 4. $1162 million.