In a small economy, gross investment in 2018 is $2500, consumption spending is $6000, net investment is $200, government spending is $1500, exports are $2000 and imports are $1000. What is GDP for this economy in 2018?

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BlackTom AI · Accepted Answer

The question asks for GDP in 2018 for a small economy, given various components of spending and trade.
First, recall the GDP identity for a closed- or open-economy using expenditure approach: GDP = C + I + G + (X - M).
- C (consumption) = 6000
- I (investment) = gross investment, not net investment, so we use 2500 (not 200 or any other figure labeled as net investment)
- G (government spending) = 1500
- X (exports) = 2000
- M (imports) = 1000, so net exports (X - M) = 2000 − 1000 = 1000
Putting these together: GDP = 6000 + 2500 + 1500 + 1000 = 11000.
Now, consider potential confusion between gross and net investment. If one mistakenly used net investment (200) instead of gross investment (2500), the calculation would be 6000 + 200 + 1500 + 1000 = 9600, which would be incorrect under the standard GDP formula that uses gross investment unless explicitly stated otherwise.
Regarding the provided answer notation, there is an entry 'c. $11000', which aligns with the correct computation above if the options included such a choice. However, since the actual list of answer options is not provided in the data, we cannot map the calculation to a specific listed option here.
Key takeaway: GDP is driven by total spending on domestically produced final goods and services, and investment must be gross investment in the standard expenditure approach, with net exports determined by exports minus imports.

MCD2090 Macroeconomics - Trimester 2 - 2025

In a small economy, gross investment in 2018 is $2500, consumption spending is $6000, net investment is $200, government spending is $1500, exports are $2000 and imports are $1000. What is GDP for this economy in 2018?

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