Question

A tourist from the US spends three nights in a hotel in Amsterdam Which statement(s) is (are) true?

a. This increases GDP of the Netherlands and decreases net exports of the US.

b. This increases GDP of the Netherlands and increase consumption of the US.

c. This increases consumption of the US, but decreases net exports of the US.

d. All of the above are correct

Answer 1

This means that U.S. resident ( tourist from U.S) bought a service (three nights in a hotel) in Netherlands (Amsterdam is the capital of Netherlands).

GDP is the value of all the final goods and services produced in a country within a given time period.

Since the service is given in the Amsterdam which lies in the geographical boundary of Netherlands, therefore it will increase the GDP of the Netherlands.

Export refers to the goods and services ( which includes tourism as well ) provided to rest of the world by the domestic nation. And Imports refer to the purchase of goods and services by domestic nation from rest of the world.

Hence, the U.S. Tourist is paying the hotel and in return getting an experience which the tourist will take back to its own country (which is US in this case).

Thus, The net export of US decreases as

Net exports = export - import ,

With increases imports, net exports decreases.

Coming onto consumption, Imports increases the consumption of the domestic country.

Hence, the consumption of US get increased.

Therefore the answer is option (d).

All of the above options are correct.