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Suppose the following transactions occur during the current year: 1. Shen orders 40 cases of beer...

Question:

Suppose the following transactions occur during the current year:

1. Shen orders 40 cases of beer from a Dutch distributor at a price of $40 per case.

2. A U.S. company sells 200 transistors to a Spanish company at $15.00 per transistor.

3. Antonio, a U.S. citizen, pays $1,100 for a computer he orders from Dellosoft (a U.S. company).

Complete the following table by indicating how the combined effects of these transactions will be reflected in the U.S. national accounts for the current.

Hint: Be sure to enter a "0" if none of the transactions listed are included in a given category and to enter a minus sign when the balance is negative.

Amount (Dollars)
Consumption
Investment
Government Purchases
Imports
Exports
Net Exports
Gross Domestic Product (GDP)

Gross Domestic Product:

Gross domestic product is the total value of all products and services in a country at a certain period. In the expenditure approach, GDP consists of household consumption, investments of business, government purchases and net exports.

Answer and Explanation:

The formula to compute the gross domestic product (GDP) is:

  • GDP = Consumption + Investments + Government purchases + (Exports - Imports)

Let us analyze each transactions.

1. Shen orders 40 cases of beer from a Dutch distributor at a price of $40 per case. Since the orders are from a foreign distributor, the purchase is considered as an import. An import decreases the GDP.

  • Import = Number of cases x Price per case
  • Import = 40 cases x $40 = $1,600

2. A U.S. company sells 200 transistors to a Spanish company at $15.00 per transistor. Since the sale is to a foreign company, the sale is considered as an export. This increases the GDP

  • Export = Number of transistors x Price per transistor
  • Export = 200 x $15.00 = $3,000

3. Antonio, a U.S. citizen, pays $1,100 for a computer he orders from Dellosoft (a U.S. company). Since the personal order is from a domestic company, it is considered as a consumption. This increases the GDP.

  • Consumption = Purchase price of the computer
  • Consumption = $1,100

Now, we can complete the table for computing the GDP.

Amount (Dollars)
Consumption $1,100
Investment 0
Government Purchases 0
Imports (1,600)
Exports 3,000
Net Exports 1,400
Gross Domestic Product (GDP) $2,500

The gross domestic product is $2,500.


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
3.4K

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