Question

What effects would each of the following revisions have on the U.S. national income and product​ accounts?

It is discovered that businesses bought​ $6 billion more furniture than previously thought. This furniture was manufactured in North Carolina during the current year.

A.Investment increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change.
B.Consumption increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change.
C.Investment increases by​ $6 billion, and GDP increases by​ $6 billion.
D.Consumption increases by​ $6 billion, and GDP increases by​ $6 billion.
E.None of the above answers is correct

Answer 1

The correct revision is that investment and GDP both increase by $6 billion, since the furniture was produced domestically and represents an addition to capital goods, which is counted as investment.

Step-by-step explanation:

If it is discovered that businesses bought $6 billion more furniture than previously thought and that the furniture was manufactured in North Carolina during the current year, the correct revision to the U.S. national income and product accounts would be Option C: Investment increases by $6 billion, and GDP increases by $6 billion. This adjustment is due to the increase in the production of capital goods (furniture in this case), which counts as an investment in GDP calculations. There is no reason to increase imports as the furniture was manufactured domestically, not imported.

When calculating GDP, we sum up all expenditures on final goods and services produced within a country during a specific time period. An increase in investment spending directly boosts GDP as it represents additional economic activity. It contributes to the aggregate demand (AD) and the overall economic output.