Question

What is the contribution to 2021 U.S. GDP in the following scenario?

A Michigan family takes a trip to France in 2021. While in France they purchase the following:
Hotel: $2500
Food: $1000
Souvenirs: $300
Transportation: $450

Answer 1

A Michigan family's spending in France contributes to France's GDP, not the U.S. GDP. U.S. GDP is calculated using the formula C + I + G + (X - M), and the example given for Country A results in a GDP of $3,030 billion.

Step-by-step explanation:

The contribution to the 2021 U.S. GDP by a Michigan family's spending in France does not directly increase the U.S. GDP because GDP measures the value of goods and services produced within a country's borders. In this case, the spending in France would contribute to France's GDP. Instead, this spending would be counted as an import when calculating the U.S. GDP. If we were to calculate a country's GDP, the formula would be GDP = C + I + G + (X - M), where C is consumption, I is investment, G is government spending, X is exports, and M is imports. With reference to the facts given for Country A, the calculation of GDP would be: $2,000 billion (consumption spending) + $50 billion (business investment) + $1,000 billion (government purchases) + ($20 billion (export sales) - $40 billion (imports)) which equals a GDP of $3,030 billion.

Answer 2

The Michigan family's spending during their trip to France does not contribute to the 2021 U.S. GDP. Instead, it is recorded as an import and would subtract from the U.S. GDP according to the formula C + I + G + (X - M). To calculate U.S. GDP, such international spending must be considered as part of import figures.

Step-by-step explanation:

The question asks about the contribution to 2021 U.S. GDP of a Michigan family's expenses during a trip to France. To calculate a country's GDP, the formula GDP = C + I + G + (X - M) is used, where C represents consumption spending, I stands for business investment, G is government purchases, and (X - M) are exports minus imports. However, when a U.S. family spends money on goods and services in France, this spending adds to the GDP of France, not the United States. Instead, it is considered an import from the perspective of the U.S. Therefore, the spending in France by the Michigan family would subtract from the U.S. GDP, as it increases the value of imports (M).

To exemplify with a hypothetical GDP calculation for Country A: GDP = $2,000 billion + $50 billion + $1,000 billion + ($20 billion - $40 billion) = $3,030 billion. In this scenario, 'Country A' is generic and not specific to the question asked about U.S. GDP. In reference to the U.S., such international spending would be factored into the GDP calculation as an increase in imports, thus reducing the net export (X - M) value component of U.S. GDP.