Assume that GDP = 4,800, consumption = 3,400, private domestic savings = 400, government purchases = 1,200, and net exports = -120.Which of the following is true?

Question

Quizplus · Accepted Answer

Disposable income can be calculated as GDP minus taxes plus transfer payments. However, without information on taxes and transfer payments, a common approach is to assume disposable income equals GDP minus government purchases, which would be 4,800 - 1,200 = 3,600, not 3,800, making A incorrect. For B, private domestic investment can be found using the identity GDP = C + I + G + NX, where I stands for private domestic investment. Rearranging the formula to solve for I gives us I = GDP - C - G - NX = 4,800 - 3,400 - 1,200 - (-120) = 320, making B correct. For C, the budget deficit is typically calculated as government spending minus tax revenue. Without explicit tax revenue data, if we interpret government purchases as the total government spending, there's not enough information to directly calculate the budget deficit, making C's correctness ambiguous without further assumptions. However, the question's phrasing suggests looking for direct calculations or implications from the provided data, which makes C's correctness not directly verifiable from the given information. Given the explanation, the correct answer should actually be B, not D, as the explanation provided does not support all the statements as being true based on the given data and typical economic calculations. My initial response indicating D was incorrect due to an oversight in fully analyzing the implications of each statement based on the provided data.

Assume That GDP = 4,800, Consumption = 3,400, Private Domestic