Question

National income and product data are generally revised. What effects would the following revisions have on consumption, investment, government purchases, net exports, and GDP? Give adequate explanation.

a. It is discovered that consumers bought $6 billion more furniture than previously thought. This furniture was manufactured during the current year in North Carolina.

b. It is discovered that consumers bought $6 billion more furniture than previously thought. This furniture was manufactured during the current year in Sweden.

c. It is discovered that businesses bought $6 billion more furniture than previously thought. This furniture was manufactured during the current year in North Carolina.

d. It is discovered that businesses bought $6 billion more furniture than previously thought. This furniture was manufactured during the current year in Sweden.

Answer 1

A.

Since it is the consumers or households who bought more, then consumption will increase and GDP will also increase by $6 Billion. It will happen because purchase took place in the current year.

B

Here, consumers bought more, but it was produced in Sweden, so consumption will increase and net export (export - import) will decrease by $6 billion. there will be no net increase in GDP.

C

Since it is the business that bought more, then investment will increase and GDP will also increase by $6 Billion. It will happen because purchase took place in the current year.

D

Here, business bought more, but it was produced in Sweden, so investment will increase and net export (export - import) will decrease by $6 billion. there will be no net increase in GDP.