Question

g The Council of Economic Advisors to the President of a country reported gross investment expenditure at​ $400,000 during a particular year. The group excluded from this valuation an amount of​ $50,000 spent by an existing domestic firm during the year.​ Mark, an​ economist, argued that this amount should have been included under the business fixed investment component of GDP. Which of the​ following, if​ true, would support​ Mark's argument? A. The firm stalled production temporarily to lower the value of its inventory stock by​ $50,000. B. The firm purchased new machinery worth​ $50,000 for its production facility during that year. C. The firm exported products worth​ $50,000 to a neighboring country. D. The firm sold off its existing machinery worth​ $50,000 and invested the proceeds in buying raw materials for production. E. The firm transferred machinery worth​ $50,000 from one of its closed facilities to one in operation.

Answer 1

The firm purchased new machinery worth​ $50,000 for its production facility during that year would support​ Mark's argument.

Explanation:

Gross Investment as calculated by national income and production, is part of the gross domestic product (GDP) (Represented by Variable I), given in the formula GDP = C + I + G + NX,

where C is consumption, G is government spending, and NX is net exports, given by the difference between the exports and imports, X − M.

So savings are all that is left with total consumption, public spending and consumer spending are reduced (i.e. I = GDP − C − G − NX ).