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Difficulty: EasyExpenditure Method of Measurement

The following macroeconomic data (in billions of Dollars) is provided for a country in a given fiscal year:

ComponentAmount ($ billions)
Consumer Expenditure (CC)500
Gross Private Domestic Investment (II)150
Government Consumption & Investment (GG)200
Exports (XX)80
Imports (MM)100

Using the expenditure method, what is the Gross Domestic Product (GDPGDP) of the country?

  1. 830830 billionAnswer
  2. B
    870870 billion
  3. C
    1,0301,030 billion
  4. D
    650650 billion

Answer

830830 billion
Under the expenditure approach, GDPGDP is calculated as the sum of personal consumption expenditure (CC), gross private domestic investment (II), government purchases (GG), and net exports (X−MX - M). Substituting the given values yields 500+150+200+(80−100)=850−20=830500 + 150 + 200 + (80 - 100) = 850 - 20 = 830 billion dollars.

Step-by-Step Solution

1
Identify the national expenditure formula for calculating Gross Domestic Product (GDP).
GDP=C+I+G+(X−M)GDP = C + I + G + (X - M)
The expenditure method sums private consumption, investment, government expenditure, and net exports.
2
Calculate Net Exports (X−MX - M).
Net Exports =80−100=−20= 80 - 100 = -20 billion dollars
Imports must be subtracted from exports to derive net external trade expenditure.
3
Sum all expenditure components together.
GDP=500+150+200+(−20)=830GDP = 500 + 150 + 200 + (-20) = 830 billion dollars
Adding consumption, investment, government purchases, and net exports gives the total GDP.

Key Concept

Expenditure Method of Measuring GDP
Estimated Time:45s
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Topics

Expenditure Method of Measurement

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