Question

Suppose in the year 2018, people spent $200 on durable goods, $200 on non-durable goods, and $100 on services. During the same year, the government paid $200 to soldiers and police officers, spent $100 building missiles and highways, spent $200 on welfare and unemployment benefits and $300 on social security payments. During this year the United States had imports totaling up to $500 while exporting $400 worth of goods and services. Finally, firms spent $200 on machines that will increase their productive capacity and they raised the amount of goods in their inventories from $400 at the beginning of the year to $500 at the end of the year.

Required:
1. Please use this information to calculate total GDP for 2018.
a. $1,500
b. $1,300
c. $1,200
d. $1,000

Answer 1

d. $1,000

Step-by-step explanation:

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

GDP = Consumption spending by households on durable and non durable goods and services + Investment spending by businesses + Government Spending + Net Export

Consumption spending = $200 + $200 + $100 = $500

Investment spending = $200 + $(500 - 400) = $300

Government spending = $200 + $100 = $300

Transfer payments aren't included in the calculation of GDP. So, the $200 spent on welfare and unemployment benefits and $300 on social security payments isn't included in the calculation of GDP.

Net export = Export- Import = $400 - $500 = $-100

GDP = $500 + $300 + $300 - $100 = $1000

I hope my answer helps you