An American buys an entertainment system that was manufactured in China.
How does the U.S. national income accounts treat this transaction?
A. Net exports and GDP both fall.
B. Net exports and GDP both rise.
C. Net exports and GDP go in opposite directions.
D. Net exports fall, and there is no change in GDP.
E. There is no change in net exports, and GDP falls.
Gross Domestic Product:
Gross domestic product (GDP) is the market value of final goods and services produced within a country in a given time period. GDP equals the sum of consumption, investment, government purchases, and net exports, which equals exports minus imports.
Answer and Explanation:
How does the U.S. national income accounts treat this transaction? (A) Net exports and GDP both fall. This transaction will count as an import since the money is going to China, which will cause net exports to fall. Additionally, as noted above, net exports is one of the components of GDP, so as net exports falls, so does GDP.
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from Economics 102: MacroeconomicsChapter 4 / Lesson 3