Everything else the same, if government expenditure increases by $400 billion and imports increase by $400 billion, then GDP
A)decreases by $400 billion.
B)does not change.
C)increases by $200 billion.
D)increases by $400 billion.
E)decreases by $200 billion.

Question

Quizplus · Accepted Answer

Government expenditure is a component of GDP, so an increase in government spending increases GDP. However, imports are subtracted from GDP, so an increase in imports decreases GDP by the same amount. Therefore, the net effect on GDP is zero.

Everything Else the Same, If Government Expenditure Increases by $400