If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and net exports are –$1,910, then government purchases are:
Question
If GDP (measured in billions of current dollars) is 3,657, investment is 1,910, then government purchases are:
Solution
The Gross Domestic Product (GDP) of a country is the sum of consumption, investment, government purchases, and net exports. This relationship can be expressed by the following formula:
GDP = Consumption + Investment + Government Purchases + Net Exports
We can rearrange this formula to solve for government purchases:
Government Purchases = GDP - Consumption - Investment - Net Exports
Substituting the given values into this formula:
Government Purchases = 3,657 - 1,910) Government Purchases = 3,657 - 1,910 Government Purchases = $2,977
So, government purchases are $2,977 billion.
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