Question

In a given year, businesses invest $2 trillion, exports total $1.5 trillion, imports total $3 trillion, consumers spend $5 trillion, and the government spends $1.5 trillion on final goods and services. Based on this, which of the following statements is true? The net exports are $4.5 trillion. The gross national income must be $8.5 trillion. The gross domestic product must be $8.5 trillion. The total value added in the economy for that year must equal $7 trillion. The country is in a recession.

Answer 1

The Gross Domestic Product (GDP) based on the provided information is calculated as $7 trillion for that year, which represents the total value added to the economy, and the correct statement from the options given is that the total value added must equal $7 trillion.

Step-by-step explanation:

To calculate the Gross Domestic Product (GDP) of a country, we use the formula Consumption + Investment + Government spending + (Exports – Imports) = C + I + G + (X - M). Applying this formula to the provided information:

• Consumption (C) = $5 trillion
• Investment (I) = $2 trillion
• Government spending (G) = $1.5 trillion
• Exports (X) = $1.5 trillion
• Imports (M) = $3 trillion

The net exports (X - M) would be $1.5 trillion - $3 trillion = -$1.5 trillion (a trade deficit).

Adding these figures up, the GDP is:

GDP = $5 trillion + $2 trillion + $1.5 trillion + (-$1.5 trillion) = $7 trillion.

Therefore, the correct statement is "The total value added in the economy for that year must equal $7 trillion."