To calculate the Real GDP for 2020 using the expenditure approach, we can use the following formula:
\[ \text{Real GDP} = C + I + G + (X - M) \]
where:
- \( C \) = Consumption
- \( I \) = Investment
- \( G \) = Government spending
- \( X \) = Exports
- \( M \) = Imports
Starting with the Real GDP of 2019, which is given as 250 million dollars, we can adjust it based on the changes in the components.
-
Change in Consumption (C):
- Increase of 20 million dollars
Therefore, new consumption = \( C + 20 \).
-
Change in Investment (I):
- Decrease of 5 million dollars
Therefore, new investment = \( I - 5 \).
-
Change in Government Spending (G):
- Increase of 10 million dollars
Therefore, new government spending = \( G + 10 \).
-
Change in Exports (X):
- Decrease of 5 million dollars
Therefore, new exports = \( X - 5 \).
-
Change in Imports (M):
- Increase of 15 million dollars
Therefore, new imports = \( M + 15 \).
Now, we can summarize the changes:
- Consumption increases by 20 million dollars.
- Investment decreases by 5 million dollars.
- Government spending increases by 10 million dollars.
- Exports decrease (net loss) by 5 million dollars.
- Imports increase (net loss) by 15 million dollars.
The net effect on GDP is: \[ \Delta GDP = \Delta C + \Delta I + \Delta G + \Delta (X - M) \]
Calculating each component:
- Change in consumption: \( +20 \)
- Change in investment: \( -5 \)
- Change in government spending: \( +10 \)
- Change in net exports (X - M): \( -5 - 15 = -20 \)
Putting it all together: \[ \Delta GDP = 20 - 5 + 10 - 20 = 5 \]
Now, we add this change to the Real GDP of 2019: \[ \text{Real GDP in 2020} = \text{Real GDP in 2019} + \Delta GDP = 250 + 5 = 255 \text{ million dollars} \]
The final Real GDP of the given economy in 2020 is:
255 million dollars
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