Exhibit 11-8 GDP data (billions of dollars) In Exhibit 11-8, using the expenditure approach, compute business investment spending (I). Which of the following is correct?

Question

Exhibit 11-8  GDP data (billions of dollars)  In Exhibit 11-8, using the expenditure approach, compute business investment spending (I). Which of the following is correct?

Quizplus · Accepted Answer

Business investment spending (I) includes all spending by businesses on capital goods such as machinery, equipment, and buildings. This can be found by subtracting all other components of GDP from total GDP. Using the expenditure approach, GDP can be expressed as:

GDP = C + I + G + NX

where C is personal consumption expenditures, G is government spending, and NX is net exports.

In this case, total GDP is not given, but we can use the information provided to calculate I:

GDP = C + I + G + NX

$4,000 billion = $2,000 billion + I + $800 billion + (-$200 billion)

Solving for I, we get:

I = $4,000 billion - $2,000 billion - $800 billion - (-$200 billion) = $2,400 billion

Therefore, business investment spending (I) is $2,400 billion (or $2.4 trillion), which corresponds to answer choice D.

Exhibit 11-8 GDP Data (Billions of Dollars) in Exhibit 11-8