Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 21, Problem 2.5P
To determine
Why the imports are to be subtracted from
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Why are imports subtracted when GDP is calculated in the expenditure approach
Identify the immediate effect of each of the following events on the U.S. GDP. List the affected component(s) of U.S. GDP for each situation if there is a change. Briefly explain the reasons if there is no change to GDP. Assume the person described by each event is an American citizen who works and lives in the U.S. Please notice that each following event is independent of one another.
A. Linda pays the college tuition fee for her daughter.
B. James receives a social security check from the US government.
C. John buys a sports car which is made in Italy.
D. Henry buys domestically produced machinery for his start-up construction business..
Please explain the difference between calculating GDP using the expenditure approach and the income approach.
Chapter 21 Solutions
Principles of Economics (12th Edition)
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- Item Measuring U.S. GDP: Using the information in the table below, calculate GDP via the expenditure approach. Expenditure Approach: Consumption expenditure Wages Investment Interest, Rent, Profits Government expenditure Exports Indirect Taxes less subsidies Depreciation Imports Dollars 15,400 8,500 2,100 4,100 3,200 3,000 1,100 2,000 8,000arrow_forwardWhich of the following transactions should or should not be counted in GDP? Answer Yes or No and briefly explain your answer. Answers without explanation will not be considered in grading, even if they are correct. a. You buy a pair of new cowboy boots on a trip to Texas b. You buy a pair of vintage cowboy boots from your cousin in El Paso c. A cat burglar sells $10,000 of stolen jewelry to a fence d. Amazon issues $1 billion worth of new shares e. GM purchases $100 million worth of tires from Firestone f. A private company builds a new road in Memphis Y g. Stay-at-home parents provide an estimated $500 million of child care servicesarrow_forwardAre the following included in US GDP? Briefly explain your answer. Used textbooks sold at your college bookstore Use books sold at a garage sale Cars made in the United States at a Toyota factory Cars made in Germany at a General Motors factory The price paid by an American tourist staying at a French hotel The price paid by a German tourist staying at a New York hotelarrow_forward
- Describe how the recent change in income may have affected personal savings, business investments, and impacted consumer and financial expenses. Integrate the equilibrium GDP into this conversation.arrow_forwardWhat is the formula for income and expenditure approach of GDP?arrow_forwardCalculate the four components of expenditure and GDP for the following economy using data from the table below. Instructions: Enter your responses as whole numbers. GDP Consumption expenditures Exports Government purchases of goods and services Construction of new homes and apartments Sales of existing homes and apartments $550 $75 $200 $100 $200 $50 Imports Beginning-of-year inventory stocks $100 End-of-year inventory stocks Business fixed investment Government payments to retirees Household purchases of durable goods $125 $100 $100 $150 Consumption expenditures: Investment expenditures: Government Purchases: Net Exports: GDP:arrow_forward
- look at this (Links https://www.cbsnews.com/news/why-gdp-fails-as-a-measure-of-well-being/) article published by CBS News. Do you agree with the author's assessment that GDP fails to measure well being? Why (or why not)? Are there things that contribute to your well-being and happiness but are excluded from the calculation of GDP? Share an example and describe why it might be excluded from the GDP calculation.arrow_forwardList and compare the four components of the expenditure approach to calculating GDP.arrow_forwardWhat is GDP, and why is it a useful measure? What are the most importantcomponents of GDP in the U.S. economy today?arrow_forward
- Which of the following is added to the GDP? A. Exports B. Imports C. Net Exports D. Personal Income Taxarrow_forwarda) There are two methods of calculating GDP: income approach and expenditure approach.According to your opinion which method is better suited for calculating the GDP of Bangladesh?Briefly explain the reasons behind your answer.b) When calculating the GDP using the expenditure method why do we subtract “imports”?c) When calculating the GDP of Bangladesh using the income approach why do we add the“earnings of foreigners living in Bangladesh”?d) When calculating the GDP of Bangladesh using the income approach why do we subtract“earnings by Bangladeshis living in foreign countries”?arrow_forwardThere are four spending groups that buy GDP: consumption, investment, government purchases, and net exports. Which group is the largest? Which one fluctuates the most?arrow_forward
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