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Chapter 7: Q3. (page 153)

If in some country personal consumption expenditures in a specific year are \(50 billion, purchases of stocks and bonds are \)30 billion, net exports are 鈭抃(10 billion, government purchases are \)20 billion, sales of secondhand items are \(8 billion, and gross investment is \)25 billion, what is the country鈥檚 GDP for the year?

Short Answer

Expert verified

The country鈥檚 GDP is $85 billion.

Step by step solution

01

Concept of GDP

GDP is measured through aggregate demand components. It comprises gross investment, government purchases, national private consumption, and net exports.

Secondhand transactions or intermediate goods are never part of an economy鈥檚 GDP as they raise the problem of double counting.

Also, any transaction that does not enhance the economy鈥檚 production is not a measure of aggregate demand. Therefore, non productive transactions also do not add to the economy鈥檚 GDP.

Here, the purchase of bonds and stocks and sales of second hand items are non productive activities. Therefore, GDP does not include these.

02

Calculating GDP

GDP = Personal Consumption Expenditure + Net Exports + Government Purchases + Gross Investment

GDP = (50 鈥� 10 + 20 + 25) billion USD

GDP = 85 billion USD

Therefore, the country鈥檚 GDP for the year is 85 billion USD.

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Most popular questions from this chapter

Suppose that in 1994 the total output in a single-good economy was

7,000 buckets of chicken. Also suppose that in 1994 each bucket of chicken was

priced at \(10. Finally, assume that in 2015 the price per bucket of chicken was

\)16 and that 22,000 buckets were produced. Determine the GDP price index for

1994, using 2015 as the base year. By what percentage did the price level, as

measured by this index, rise between 1994 and 2015? What were the amounts of

real GDP in 1994 and 2015?

Define net exports. How are net exports determined? Explain why net exports might be a negative amount.

How do 鈥渇ree鈥� products make the calculation of GDP more difficult? What are hedonic adjustments, and why are they necessary? Will inflation tend to be overstated or understated if quality improvements are not accounted for? Explain

Provide three examples of each: consumer durable goods, consumer non-durable goods, and services.

Suppose that this year鈥檚 nominal GDP is \(16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level 5 years ago. Using that index, we find that this year鈥檚 real GDP is \)15 trillion. Given those numbers, we can conclude that the current value of the index is:

a. higher than 100.

b. lower than 100.

c. still 100.
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