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Suppose the plant generates $250,000 in corporate profits this year. These profits will affect the U.S. GDP for which of the following reasons?

1) Increase in government spending
2) Increase in consumer spending
3) Increase in exports
4) Increase in imports

1 Answer

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Final answer:

The $250,000 in corporate profits will affect U.S. GDP as they contribute to the overall income and production levels of the nation, which are part of the GDP calculation. Directly, these profits do not cause an increase in government spending, consumer spending, exports, or imports.

Step-by-step explanation:

If a plant generates $250,000 in corporate profits this year, it will affect the U.S. GDP because profits are a part of a nation's income and production, which are key components of GDP. Corporate profits contribute to the Gross Domestic Product (GDP) as they're used for investment, can be distributed as dividends which fuel consumption, and can enhance a firm's value leading to higher stock investments. However, the profits themselves do not directly correlate to any change in government spending, consumer spending, exports, or imports unless the corporation decides to use these profits in such ways.

An increase in GDP can indeed lead to an increase in personal income, which in turn could affect consumer spending and imports. The effect on exports would be indirect and would depend on other factors such as foreign demand. As such, of the options provided, none directly relates to why the profits would affect GDP, although the impact of these profits could eventually influence the components of GDP such as consumption (if the profits are distributed and spent) or investment.

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