Question

Suppose that Inventories fall by $2 billion, Consumption increases by $8 billion, Welfare Payments decline by $3 billion, Export increases by $1 billion and Import also increases by $2 billion. Ceteris paribus! By how much should measured-GDP change?

Answer 1

Answer: The measured-GDP would increase by $5 billion.

Explanation:

Given :

Inventories fall by $2 billion,

Consumption increases by $8 billion,

Welfare Payments decline by $3 billion,

Export increases by $1 billion

Import also increases by $2 billion.

Note: While calculating GDP we will not include Welfare payments in it.

$GDP = C + I + G + (X-M)$

GDP = $-2 + 8 + 1 - 2$

GDP = $5 billion