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Suppose that this year a small country has a GDP of \(100 billion. Also assume that Ig = \)30 billion, C = \(60 billion, and Xn = 鈭 \)10 billion. What is the value of G?

a. \(0

b. \)10 billion

c. \(20 billion

d. \)30 billion

Short Answer

Expert verified

Option C, $20 billion.

Step by step solution

01

Expenditure method for calculating GDP

The expenditure method adds the total amount of money spent or expenditure on finished goods and services stock of capital in a year to find the GDP of the country.

GDP=C+Ig+G+Xn

C is the personal consumption expenses of the households to buy the market goods and services

Igis the gross investment expenses of the firms on capital goods.

G is the government purchases

Xn is the net exports, a difference between foreign spending on domestically produced goods (exports) and domestic spending on foreign goods (imports).

02

Explanation for choosing option ‘c’

Given, C is $60 billion, Ig is $30 billion, Xn is -$10 billion, and GDP is $100 billion.

GDP=C+Ig+G+Xn100,000,000,000=60,000,000,000+30,000,000,000+G+-10,000,000,000G=100,000,000,000-80,000,000,000G=20,000,000,000

Thus, government expenditure is $20 billion, and option 鈥榗鈥 is correct.

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Most popular questions from this chapter

Suppose GDP is \(5.0 trillion, depreciation is \)1 trillion, and gross output (GO) is $17.25 trillion.

a. What is the value of all stages of production and distribution except for final sales of goods and services?

b. What is the dollar value of the economic activity taking place at every stage of production and distribution?

Which of the following are included in this year鈥檚 GDP? Which are excluded? Explain your answers.

a. Interest received on an AT&T corporate bond.

b. Social Security payments received by a retired factory worker.

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g. The publication and sale of a new college textbook.

h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay.

i. A $2 billion increase in business inventories.

j. The purchase of 100 shares of Alphabet (the parent company of Google) stock.

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

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?

Explain why an economy鈥檚 output, in essence, is also its income.

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