Calculate the Nominal GDP using the data in the table above (round answer to one decimal place).
Answer (2)
The Nominal GDP has been calculated using the expenditure approach formula, resulting in a total of $70.5 billion. This was done by identifying values for Consumption, Investment, Government Spending, and adjusting for Net Exports. The final calculation shows GDP equals $70.5 billion.
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Identify the values for Consumption, Investment, Government Spending, Exports, and Imports from the table.
Calculate Net Exports by subtracting Imports from Exports: N e t E x p or t s = E x p or t s − I m p or t s = 1.5 − 2.5 = − 1.0 .
Apply the expenditure approach formula: G D P = C o n s u m pt i o n + I n v es t m e n t + G o v er nm e n t Sp e n d in g + N e t E x p or t s = 34.0 + 16.0 + 21.5 + ( − 1.0 ) = 70.5 .
The Nominal GDP is 70.5 billion.
Explanation
Understanding the Problem We are given the values for different categories of spending in the United States during a one-year period. Our goal is to calculate the Nominal GDP using the expenditure approach. The expenditure approach formula is: GDP = Consumption + Investment + Government Spending + (Exports - Imports). We need to identify the correct values from the table and plug them into the formula.
Identifying the Values From the table, we have:
Value of Consumption = $34.0 billion Value of Investment Spending = $16.0 billion Value of Government Spending = $21.5 billion Value of Exports = $1.5 billion Value of Imports = $2.5 billion
Note that Government Transfers and Intermediate Goods are not included in the GDP calculation.
Calculating Net Exports Now, we will calculate the Net Exports:
Net Exports = Exports - Imports Net Exports = $1.5 - $2.5 Net Exports = -$1.0 billion
Calculating Nominal GDP Next, we will calculate the Nominal GDP using the expenditure approach formula:
GDP = Consumption + Investment + Government Spending + Net Exports GDP = $34.0 + $16.0 + $21.5 + (-$1.0) GDP = $70.5 billion
Final Answer Therefore, the Nominal GDP is $70.5 billion.
Examples
Understanding Nominal GDP is crucial for assessing a country's economic performance. For instance, if a country's Nominal GDP increases from one year to the next, it indicates that the total value of goods and services produced has risen. This information is vital for policymakers who use it to make informed decisions about fiscal and monetary policy. For example, a rising GDP might prompt the government to invest more in infrastructure or adjust interest rates to manage inflation. Nominal GDP is calculated by summing up all expenditures within the country: G D P = C o n s u m pt i o n + I n v es t m e n t + G o v er nm e n t Sp e n d in g + ( E x p or t s − I m p or t s ) .
