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In some developing countries, you can see modern airports, huge government buildings, and new...

Question:

In some developing countries, you can see modern airports, huge government buildings, and new highway system around the capital city. However, those countries' real GDP are still low. Would you provide the possible reason(s) to explain why the expansionary fiscal policy doesn't work in those countries?

Gross Domestic Product

The Gross Domestic Product, or the GDP, is the measure of the economic power of a country. To calculate it, you take private consumption plus gross investment plus government investment plus government spending plus the net of exports minus imports.

Or:

GDP: GDP = C + I + G + (X ? M)

Answer and Explanation:

Gross Domestic Product is made up of a number of parts. While there is an investment in the country, perhaps another activity is occurring. Examples include:

  • Consumer spending is low or non-existant
  • Government spending on activity is low
  • Imports are greater than its exports.

These and other activities can detract from the GDP of a country.


Learn more about this topic:

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Overview of the Gross Domestic Product

from CLEP Social Sciences and History: Study Guide & Test Prep

Chapter 59 / Lesson 2
4.6K

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