Question

Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = – $10 billion. How big is G?

Answer 1

Answer:

G = $20 Billion

Explanation:

Given that

C = $60 billion

GDP = $100 billion

Gross Investment = $30 billion

Net export = $10 billion

Recall that

GDP = C + Ig + G + Xn

Therefore

G = GDP - ( C + Ig + Xn )

G = 100 - ( 60 + 30 + [-10])

G = 100 - (90 - 10)

G = 100 - 80

G = 20

Thus, government expenditure is $20 billion.