Question

If consumption expenditures are​ $500, spending on fixed investment is​ $100, imports are​ $40, exports are​ $75, the capital consumption allowance is​ $25, government spending is​ $50, and inventories have fallen by​ $5, then Gross Domestic Product​ (GDP) will be?

Answer 1

Answer:

$705

Explanation:

GDP is the monetary value or price of all finished goods ans services produced in a country or region in an specific period of time. To calculate it we use this formula:

GDP= Consumption (C)+Domestic Investment (I)+Governmet expenditures and income (G)+ Net Exports (total exports minus total imports) (NX)

In this case we have, Capital Consumption Allowance (CCA): the percentage of GDP that a country must spend each year to maintain the certain economic production level.

This account is used when we have an income approach of the GDP and when we calculte the net domestic product (NDP). This formula is used when we calculate NDP.

NDP= C+I+G+NX-CCA

And also we have a formula that incorporates NDP and GDP.

NDP=GDP-CCA ⇒ GDP=NDP+CCA

So, CCA must be added to NDP to obtain GDP.

The problem also have the concept of inventories. Inventories are a stock and GDP measures a flow of production. If we want to use inventories in the GDP calculation, the change in this stock must be included.

For this problem we calculate first the NDP

NDP=$500+$100+$50+($75-$40)

NDP=$685

Then we calculate the GDP

GDP=$685+$25

GDP=$710

Then we add the change in inventories which was a fallen by 5%

GDP=$710-$5

GDP=$705