Question

In a certain economy in 2005, GDP amounted to $5,000; consumption amounted to $3,000; government purchases were equal to investment; and the value of imports exceeded the value of exports by $200. It follows that government purchases amounted to

Answer 1

Government purchases amounted to $1,100.

Step-by-step explanation:

We have to use the following formula to calculate the GDP:

G DP= C+I+G+(X−M )

C= consumption

I= investments

G= government expenditure

X= exports

M= imports

We replace the formula with the information given: GDP is 5,000, Consumption is 3,000 and X-M is -200 because the imports exceeded the exports by 200.

5,000=3,000+I+G-200

5,000=2,800+I+G

5,000-2,800=I+G

2,200=I+G

Now, we have that the investments plus the government purchases is equal to 2,200 and the situation states that both values are equal, so:

2,200/2=1,100