Question

GM, an American car firm, has its headquarters in Detroit, Michigan, but some of its factories are located in Mexico. If a Chevrolet Bolt (Chevrolet is owned and run by GM) is entirely made in Mexico and then sold in the United States, what will the net effect be on U.S. GDP?

Answer 1

Gross domestic product is the market estimation of conclusive merchandise and enterprises that are created inside the geological limits of a nation in a given time period(usually one year).

Presently here the creation of the vehicle happens inside the land limits of the Mexico and not USA so it will be included the GDP of the Mexico. Additionally, the vehicle delivered in Mexico is being sent out to USA which will be an option to the import bill of the USA contrarily affecting its economy so it will have negative impact on the GDP of the USA.

GDP = C + I + G + X - M

C= consumption expenditure

I= investment Expenditure

G= Government Expenditure

X= Exports

M = Imports

The import of car will come under the segment M which is a deduction in GDP calculation.