The country of Nemedia does not trade with any other country. Its GDP is $20 billion. Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments. Consumption equals $13 billion, and investment equals $2 billion. What is the value of the goods and services purchased by the government of Nemedia?

Question

Quizplus · Accepted Answer

In closed economy, GDP = C + I + G, where C is consumption, I is investment, and G is government purchases. Rearranging, we have G = GDP − C − I = $20 billion − $13 billion − $2 billion = $5 billion. Thus, the value of goods and services purchased by the government of Nemedia is $5 billion.

The Country of Nemedia Does Not Trade with Any Other