Question

Suppose Kim purchases a new personal computer produced in China for $1,900. What is the effect on the components of GDP and GDP as a whole?
Instructions: If there is no impact on that component enter a O for $0. If there is a positive contribution to the component enter in a the whole dollar amount. If there is a negative contribution to the component enter a negative sign before the dollar amount. Be sure all boxes include a number.
Consumption _____$
Investment _______ $
Government Expenditures ________$
Net Exports _____ $
Change in GDP as a result of the transaction __________ $

Answer 1

Answer:

Consumption $ 1900

Investment 0

Government Expenditures 0

Net Exports -$ 1900

Change in GDP as a result of the transaction 0

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

The purchase of the laptop is part of durable consumption. So, consumption increases by $1900

The purchase of the laptop is not by a business or by the government. Investment and government expenditure remains unchanged.

The purchase of the laptop from China constitutes an import activity. Import  increases. But import is a negative function of import, so net export decreases.

Total change in GDP = $1900 + 0 + 0 - $1900 = 0