The following information pertains to the national accounts of Econoland in 2016
ID: 1103869 • Letter: T
Question
The following information pertains to the national accounts of Econoland in 2016. Assume there are no government transfers.
Consumer spending = $165 Government spending on goods and services = $85 Taxes = $70 Private investment spending = $110 Exports = $20 Net Exports = $-10
a. Calculate GDP in 2016. What percentage of GDP is private investment spending?
b. Calculate the government’s budget balance in 2016, was the government’s budget in surplus or deficit?
c. Calculate the value of imports in 2016. Did Econoland run a trade surplus or a trade deficit in 2016, and what was its value?
d. Describe the difference between nominal and real GDP.
Explanation / Answer
Consumer spending = $165
Government spending on goods and services = $85
Taxes = $70
Private investment spending = $110
Exports = $20
Net Exports = $-10
(a)
GDP = C+I+G+Net export
= 165 +110 +85 +(-10)
=360 -10
=$350
private investment spending percentage of GDP is= (private investment spending /GDP)*100
= (110 /350)*100
=31.42%
(b)
the government’s budget balance in 2016 = T-G
= 70 -85
= -$15
Since tax revenue is less than government expenditure so there will be budget deficit of $15.
(c)
Net export = export - import
-10 =20 - import
Import =20 +10
= $30
the value of imports in 2016 =$30
Since net export is -$10, so there is trade deficit of -$10.
(d)
The nominal GDP measures the value of national output at current prices without adjusting the effect of inflation.
On the other hand real GDP measures the quantity of output and it is adjusted with the prevailing inflation and it is measured at constant prices.
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