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Using the expenditure approach, the Real GDP of a given economy was calculated as 250 million dollars in 2019. In 2020, the economy experienced the following:

An increase of 20 million dollars in consumption.
A decrease of 5 million dollars in investment.
An increase of 10 million dollars in government spending.
The value of all exports decreased by 5 million dollars.
The value of all imports increased 15 million dollars.
What is the Real GDP of the given economy in 2020?

(1 point)
Responses

295 million dollars
295 million dollars

235 million dollars
235 million dollars

255 million dollars
255 million dollars

270 million dollars

1 answer

To calculate the Real GDP for 2020 using the expenditure approach, we will adjust the Real GDP from 2019 based on the changes in consumption, investment, government spending, exports, and imports.

  1. Initial Real GDP for 2019: 250 million dollars

Now, we can adjust for the changes:

  • Change in Consumption: +20 million dollars
  • Change in Investment: -5 million dollars
  • Change in Government Spending: +10 million dollars
  • Change in Exports: -5 million dollars
  • Change in Imports: +15 million dollars (this reduces GDP, so we treat it as -15 million dollars)

Now, let’s calculate the net impact:

\[ \text{Change in GDP} = \text{Change in Consumption} + \text{Change in Investment} + \text{Change in Government Spending} + (\text{Change in Exports} - \text{Change in Imports}) \]

Substituting the values:

\[ \text{Change in GDP} = 20 + (-5) + 10 + (-5 - 15) \]

Calculating step by step:

\[ \text{Change in GDP} = 20 - 5 + 10 - 5 - 15 \] \[ \text{Change in GDP} = 20 - 5 + 10 - 20 \] \[ \text{Change in GDP} = 5 \]

Finally, we add this change to the 2019 Real GDP:

\[ \text{Real GDP 2020} = \text{Real GDP 2019} + \text{Change in GDP} = 250 + 5 = 255 \text{ million dollars} \]

Thus, the Real GDP of the economy in 2020 is 255 million dollars.

Final Answer: 255 million dollars.