Felix and Janet Goldman live in Swarthmore, PA. Their son, Larry, owns his own plumbing business....

Question:

Felix and Janet Goldman live in Swarthmore, PA. Their son, Larry, owns his own plumbing business.

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption, investment, government purchases, exports, or imports. There could be more than one answer.

1. Felix buys a sweater made in Guatemala.

a. consumption

b. investment

c. government purchases

d. exports

e. imports

2. Felix's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing facility in China.

a. consumption

b. investment

c. government purchases

d. exports

e. imports

3. Janet gets a new video camera made in the U.S.

a. consumption

b. investment

c. government purchases

d. exports

e. imports

4. Larry buys a new set of tools to use in his plumbing business.

a. consumption

b. investment

c. government purchases

d. exports

e. imports

5. The state of Pennsylvania repaves highway PA 320, which goes through the center of Swathmore.

a. consumption

b. investment

c. government purchases

d. exports

e. imports

GDP Examples:

GDP is calculated with the following formula GDP= C+I+G+NX.

  • C is the money spent on consumption such as a TV for your house
  • I is the money spent on investments such as a new printer for your office
  • G is government spending such as on the military
  • NX is net exports, where exports are the selling of goods and services to foreign entities and imports the buying of goods or services from foreign entities.

Answer and Explanation:

1.E. Since Felix bought a good from a foreign company, this fails under imports.

2.D. Since Felix is selling a service to a foreign firms, this...

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Nominal GDP: Definition & Formula

from Introduction to Macroeconomics: Help and Review

Chapter 7 / Lesson 12
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