Question

When a US company purchases and imports wood from Brazil to use to build new houses, within the United States, this purchase increases the investment consumption, government purchase, component of GDP, while also decreasing net exports by the same amount. Therefore, the purchase of wood from Brazil:_____1. An overall decrease2. No overall change 3. An overall increas in US GDP.

Answer 1

The correct answer is 2. No overall change.

Step-by-step explanation:

The aggregate demand is the total goods and services demanded by a country, at a certain price level, in a certain period of time.

The aggregate demand that can be accounted for measures exactly the same as GDP. So they are often used as synonyms.

To calculate aggregate demand, the same methods as for calculating GDP can be used, however, aggregate demand is associated with expenditure, so it is calculated by the product method, that is, from the point of view of what society has spent. This calculation takes into account the expenditure of families (private individuals), what has been spent on investment, the cost of public administrations, and finally, net exports, which is the difference between imports and exports In this way, the Aggregate Demand formula would look like this:

DA = C + I + G + (X-M)