Economics Semester Exam

Question

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Question
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

270 million dollars
270 million dollars

295 million dollars
295 million dollars

255 million dollars
255 million dollars

235 million dollars

Answer 1

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

1. Starting Real GDP for 2019: 250 million dollars.

2. Changes in 2020:

   • Increase in consumption: +20 million dollars
   • Decrease in investment: -5 million dollars
   • Increase in government spending: +10 million dollars
   • Decrease in exports: -5 million dollars
   • Increase in imports: -15 million dollars (since imports are subtracted in the GDP calculation)

Now, let's summarize these adjustments:

• Total Adjustment = +20 (consumption) - 5 (investment) + 10 (government spending) - 5 (exports) - 15 (imports)
• Total Adjustment = 20 - 5 + 10 - 5 - 15 = 5 million dollars

3. Calculate the Real GDP for 2020:
   • Real GDP for 2020 = Real GDP for 2019 + Total Adjustment
   • Real GDP for 2020 = 250 million dollars + 5 million dollars = 255 million dollars.

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

The correct response is: 255 million dollars.