Question

Explain which expenditure category of GDP changes and the direction of the change that results for each transaction described. a. A domestic business purchases a domestically produced computer to use in a business office. b. A domestic business produces a computer that is sold to a foreign company. c. The federal government purchases a domestically produced computer to use in a court house. d. A domestic household purchases a domestically produced computer to use in a home. e. A domestic household purchases a computer produced in a foreign country to use in a home.

Answer 1

Answer:

Investment spending increases

b. Net export increases

c. Government spending increases

d. consumption spending increases

e. consumption spending increases

net export decreases

Explanation:

Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year

GDP calculated using the expenditure approach = Consumption spending by households + Investment spending by businesses + Government spending + Net export

Net export = exports – imports

When exports exceed import there is a trade deficit and when import exceeds import, there is a trade surplus.  

A domestic business purchases a domestically produced computer to use in a business office increases business inventory.

The purchase of a computer by a foreign company increases export. export is a positive function of net export, so net export increases

The government's purchase increases government spending

The purchase of a computer is a durable purchase by households. This increases consumption spending

Also, the purchase of a computer from a foreign country is an import Import is a negative function of net export. so net export reduces