Question

In the country of Krugman, a business spent ( $ 100 ) million building a factory. GDP eventually increased by 400 million. People spend ( 95 % ) of every dollar on they receive. What percent of the business?

Answer 1

In the country of Krugman, a business's investment led to a significant increase in GDP reflecting a high marginal propensity to consume.

To calculate GDP, add together consumption, investment, government spending, and net exports (exports minus imports), which in the provided example equals $3,030 billion.

Step-by-step explanation:

In the country of Krugman, a business's investment of $100 million in building a factory led to a $400 million increase in GDP. Assuming that people spend 95% of every dollar they receive, the unique characteristic of this economy is its high marginal propensity to consume (MPC).

However, this question references a different scenario where an increase in GDP by $100 results in consumption increasing by $57, indicating an MPC of around 57%. To calculate GDP, we consider the formula GDP = Consumption + Investment + Government Spending + (Exports - Imports). So for the provided example:

• Consumption spending = $2,000 billion
• Government purchases = $1,000 billion
• Business investment = $50 billion
• Export sales = $20 billion
• Imports = $40 billion

Hence, the dollar value of GDP would be GDP = $2,000 billion + $1,000 billion + $50 billion + ($20 billion - $40 billion) = $3,030 billion.