Question

When an Egyptian firm purchases a cement mixer from Slovakia,

a)Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP decreases, Slovakian net exports increase, and Slovakian GDP increases.
b)Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP is unaffected, Slovakian net exports increase, and Slovakian GDP increases.
c)Egyptian investment decreases, Egyptian net exports increase, Egyptian GDP is unaffected, Slovakian net exports decrease, and Slovakian GDP decreases.
d)Egyptian investment increases, Egyptian net exports do not change, Egyptian GDP increases, Slovakian net exports do not change, and Slovakian GDP is unaffected.

Answer 1

B

Step-by-step explanation:

Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year

GDP calculated using the expenditure approach = Consumption spending by households + Investment spending by businesses + Government spending + Net export

Net export = exports – imports

Investment spending includes inventory purchase by businesses. When an Egyptian firm purchases a cement mixer, the Egyptian's investment increases.

Also, because the mixer is bought from Slovakia, it is regarded as an import. Because import is a negative function of net export, net export decreases#

The increase of investment and the decrease in net export, cancel out each other. As a result, GDP does not change.

Slovakian net export increases because export is a positive function of net export