Components of GDP: Consumption, Investment, Government purchases, Net Exports What components of GDP (if any) would...

Components of GDP: Consumption, Investment, Government purchases, Net Exports

What components of GDP (if any) would each of the following transactions affect? Explain. Copy and paste your answers below.

1. A family buys a new refrigerator.

2. Aunt Jane buys a new house.

3. Ford sells a mustang from its inventory.

4. You buy a pizza.

5. California repaves Highway 101.

6. Your parents buy a French bottle of wine.

7. Honda expands its factory in Marysville, Ohio.

8. I cut my grass.

9. I pay a detail company to wash and detail my car.

10. Target imports a t shirt from China for $10, but then sells it for $20.

Example answer:

1. Family is a consumer and it is a good, so (C)onsumption would increase GDP.

Solutions

Expert Solution

1. Family is a consumer and it is purchasing a good so, C would increase GDP.

2. Aunty Jane purchases new house for investment (I) so investment component will increase GDP.

3. Ford is a good which would be purchased for consumption so C increases. However, at the same time, inventory decreases so investment will decrease.

4. Pizza is a consumption good so consumption spending would increase.

5. It is a government spending (G) so G would increase GDP.

6. Wine is a consumption good so C will increase and at the same time wine is imported from France so imports will increase and thereby net exports (NX) will decrease.

7. Investment (I) is done by Honda so I will increase.

8. It does not affect GDP because it is a service done for self.

9. This is a consumption spending so C would increase.

10. Consumption would increase due to sale of t shirt and t shirt is imported from China so imports increase and thereby NX decrease. But decrease in net exports is less than increase in consumption so GDP would increase.

Rahul Sunny answered 1 year ago

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