1. Use the information given on Table 1 to answer the following questions Table

Question

1. Use the information given on Table 1 to answer the following questions Table 1: U.S. 2011-2012 Expenditures (S billions 20 2012 10,729 1,120 3,625 3,783 7,104 7,337 1,855 2,062 1,818 2,004 58 560 2,0942,184 2,662 2,744 3,060 3,063 1,222 1,214 1,8381,849 Personal consumption expenditures Goods Services Gross private domestic investment Fixed investment Change in private inventories 37 568 Net exports of goods and services Exports Imports Government expenditures Federal State and local a. Calculate GDP in 2011 and 2012 b. Is there trade deficit or surplus? What does it imply about the future?

Explanation / Answer

(1)

(a) GDP = Personal consumption + Gross domestic investment + Net exports + Government expenditure

GDP, 2011 ($ billion) = 10,729 + 1,855 - 568 + 3,060 = 15,076

GDP, 2012 ($ billion) = 11,120 + 2,062 - 560 + 3,063 = 15,685

(b) Since the net exports is negative in both years, there is a trade deficit, implying exports are lower than imports. This indicates that current account balance is negative and in future, this may keep raising the deficit unless imports are lowered and/or exports are enhanced.

NOTE: First question is answered.

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