What is Endoor\'s GDP? Household purchases of durable goods $3685 Salaries of go

Question

What is Endoor's GDP?

Household purchases of durable goods $3685 Salaries of government workers $2851 Federal government expenditures on roads $3,702 Domestic purchases of foreign goods $1,943 Changes in inventory $1,047 Unemployment benefits paid by the federal government $2,219 Household purchases of services $5,833 Foreign purchases of domestically produced goods $3,736 Purchases of machinery and equipment by firms $1,017 Local government expenditures on bridges $239 Welfare payments to households $1,061 Household purchases of nondurable goods $3,949

Explanation / Answer

Answer: $ 28,002

Total GDP is the sum of four categories of final demand:

where,

C = consumption expenditures
I = investment
G = government spending
NX = net exports (exports minus imports)

Sr. No. Included in GDP Calculation (Yes No) Reason 1 Household purchases of durable goods $3,685 Yes Consumption
1. Personal consumption expenditures consist of household purchases of durable goods, nondurable goods, and services. 2 Salaries of government workers $2,851 Yes Salaries to government workers are part of GDP; they represent direct government purchase of services. 3 Federal government expenditures on roads $3,702 Yes The government is treated as a final consumer even though it acts like a firm in that it uses resources in the production of goods and services for consumption by its citizens. But, the goods and services supplied by government, such as national defense, public education, building and maintenance of roads, generally have no market prices (e.g., "user fees") associated with them. The solution that has been adopted is that government production is valued at the cost of production. 4 Domestic purchases of foreign goods $1,943 Yes Goods and services produced and sold by foreigners within the domestic borders are counted in the GDP. 5 Changes in inventory $1,047 Yes Total Investment (I) = Fixed Investment + Inventory Investment + Residential Investment 7 Household purchases of services $5,833 Yes Services - Since the 1960s the fastest growing component of consumer purchases has been the area of services. 8 Foreign purchases of domestically produced goods $3,736 Yes Only goods and services produced domestically are included within the GDP. 9 Purchases of machinery and equipment by firms $1,017 Yes Business Investment - This includes the actual purchases of goods used in the production process. Business investment includes the construction of new offices and factories, and the purchase of machinery, computers, and any other equipment used to assist labor in the production of goods and services.

Business investment counts as gross investment, which includes purchases of machinery to replace worn-out equipment. 10 Local government expenditures on bridges $239 Yes Included in Government Spending 12 Household purchases of nondurable goods $3,949 Yes Nondurable items have a shorter life span. An example of a nondurable consumer purchase is groceries. The life span of the typical food is short, especially compared with the refrigerator (durable item) in which perishable foods are kept. Other examples of purchases that are considered nondurables include newspapers, magazines, clothing, and hats (which are always flying off with the wind)

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