Refer to the following table. $\begin{array}{| l | c | }
\hline &\text { In billims of dollars }\
\hline \text { GDP } & 5.0 \
\hline \text { Government Purchases } & 1.0 \
\hline \text { Transfer payments } & 0.2 \
\hline \text { Exports } & 0.4 \
\hline \text { Irnports } & 0.5 \
\hline \text { Net foreipri factor income } & 0.4 \
\hline
\end{array}$ The sum of investment and consumption in this economy is:

Question

Refer to the following table. $\begin{array}{| l | c | } 
\hline &\text { In billims of dollars }\
\hline \text { GDP } & 5.0 \
\hline \text { Government Purchases } & 1.0 \
\hline \text { Transfer payments } & 0.2 \
\hline \text { Exports } & 0.4 \
\hline \text { Irnports } & 0.5 \
\hline \text { Net foreipri factor income } & 0.4 \
\hline
\end{array}$ The sum of investment and consumption in this economy is:

Quizplus · Accepted Answer

GDP (Gross Domestic Product) can be calculated using the formula: GDP = C + I + G + (X - M) + NFFI, where C is consumption, I is investment, G is government purchases, X is exports, M is imports, and NFFI is net foreign factor income. Given the data, we can rearrange the formula to solve for C + I since we're given values for the other variables: 5.0 = C + I + 1.0 + (0.4 - 0.5) + 0.4. Simplifying, we get C + I = 5.0 - 1.0 - (-0.1) - 0.4 = 3.7. However, transfer payments are not included in the calculation of GDP, so they do not affect the sum of investment and consumption directly. Therefore, the correct calculation should not subtract or add the transfer payments, leading to a slight error in the explanation process. The correct approach to find the sum of investment and consumption directly from the given data involves understanding that GDP = C + I + G + NX (where NX = X - M) + NFFI, and rearranging for C + I when all other components are known. Given the mistake in the initial explanation, the correct calculation should directly address the components of GDP without incorrectly adjusting for transfer payments, which do not factor into the GDP equation as they are not a part of consumption or investment directly.

Refer to the Following Table The Sum of Investment and Consumption in This Economy Is