2. Michael buys a used car for $9,000 and spends $300 on a new radio that...
2. Michael buys a used car for $9,000 and spends $300 on a new radio that is made in the U.S. The end result of these two transactions is
a. U.S. consumption purchases increase by $300 and U.S. GDP increases by $300.
b. U.S. consumption purchases increase by $300 and U.S. GDP increases by $9,000.
c. U.S. consumption purchases increase by $9,000 and U.S. GDP increases by $9,300.
d. U.S. consumption purchases increase by $9,300 and U.S. GDP increases by $9,300
Homework Answers
Ans) the correct option is a) U.S. consumption purchases increase by $300 and U.S. GDP increases by $300.
$ 300 is spent on the new radio, it will be considered as a consumption. Consumption is a component of aggregate demand so increase in consumption will increase aggregate demand.
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