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Discuss which of the following fall into the categories of consumption, investment, government expenditure and net...

Discuss which of the following fall into the categories of consumption, investment, government expenditure and net exports from the Y = C + I + G + NX (X – M) identity, and whether the impact is to increase or decrease GDP.

(a) Charles buys a second-hand textbook from Tim.

(b) When Charles bought the book, he paid Sarah $10 to collect it from Tim.

(c) Thomas buys a new house

(d) Your firm sells meat to Indonesia

(e) The fish and chips shop down the road buys fish to make meals for diners.

(f) The same shop buys a deep fryer to fry fish for meals.

Solutions

Expert Solution

(a) Charles buys a second-hand textbook from Tim .: This would not be included in GDP because it has already been counted when Tim purchase the book , so counting it again would create the problem of double accounting.

(b) When Charles bought the book , he paid Sarah $10 to collect it from Tim : This would be included as consumption (C) component in GDP , this would increase GDP.

(c) Thomas buys a new house.: This would be included as investment (I) component in GDP, it increases GDP.

(d) Your firm sells meat to Indonesia .: This would be included as exports (X) and therefore increases Net export(NX) and in turn increases GDP.

(e) The fish and chips shop down the road buys fish to make meals for diners.: This would included as investment (I) component in GDP and increases GDP.

(f) The same shop buys a deep fryer to fry fish for meals.: This would also included as investment (I) component in GDP and increases GDP.

Rahul Sunny answered 1 year ago
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