Question

billions of dollars Personal consumption expenditures 1,000 Gross private domestic investment 500 Net exports 300 Imports 180 Federal government purchases of goods and 280 services State and local government purchases of goods 200 Transfer Payments 90 What is the value of GDP? $2,280 billion O $2,550 billion O $2,170 billion O $1,820 billion

Answer 1

The correct answer is letter "A": $2,280 billion.

Step-by-step explanation:

The Gross Domestic Product or GDP reflects the overall market value of all the goods and services produced by a nation and measures the economy's output. The following formula is used to calculate GDP:

GDP = C + G + I + NX

Where:

• C: private consumption or consumer spending
• G: government spending
• I: businesses' capital spending
• NX: net exports (exports - imports)

In the example:

• Imports are already included in the net exports. Then, the amount of $180 must not be included again.
• Transfers are not government expenses. Thus, they are not included in the GDP.

We have:

GDP = Personal consumption expenditures + Gross private domestic investment + Net exports + Federal government purchases of goods and services + State and local government purchases of goods

GDP = $1,000 + $500 + $300 + $280 + $200

GDP = $2,280 billion