An economy produces 1,000,000 computers valued at $2,000 each.Households purchase 200,000 computers,of which 100,000 are imported.Businesses purchase 300,000 domestically-produced computers.The government purchases 300,000 domestically-produced computers,and 100,000 domestically-produced computers are sold abroad.The unsold computers at the end of the year are held in inventory by the computer manufacturers.What is the value of GDP?
A) $0.9 billion.
B) $1.0 billion.
C) $1.8 billion.
D) $2.0 billion.
E) $3.8 billion.

Question

Quizplus · Accepted Answer

To calculate GDP we use the formula: GDP = C + I + G + (X-M)
Where:
C = Household consumption = $400 million (200,000 computers x $2,000 each)
I = Business investment = $600 million (300,000 computers x $2,000 each)
G = Government spending = $600 million (300,000 computers x $2,000 each)
(X-M) = Net exports = $0 (100,000 computers exported - 100,000 computers imported)

Adding everything up: $400 million + $600 million + $600 million + $0 = $1,600 million or $2.0 billion. Therefore, the answer is D.

An Economy Produces 1,000,000 Computers Valued at $2,000 Each