Exhibit 9-1 GDP and consumption data

As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are − $0.5 trillion, and GDP is $2 trillion, then:
A) inventory depletion is − $1.5 trillion.
B) inventory accumulation is − $2.0 trillion.
C) inventory depletion is − $0.5 trillion.
D) inventory accumulation is $0.5 trillion.

Question

Exhibit 9-1 GDP and consumption data

As shown in Exhibit 9-1, if investment is $0.5 trillion, government spending is $1 trillion, net exports are − $0.5 trillion, and GDP is $2 trillion, then:
A) inventory depletion is − $1.5 trillion. 
B) inventory accumulation is − $2.0 trillion. 
C) inventory depletion is − $0.5 trillion. 
D) inventory accumulation is $0.5 trillion.

Quizplus · Accepted Answer

To calculate GDP using the expenditure approach, we add together consumption, investment, government spending, and net exports. 
GDP = C + I + G + NX 
$2 trillion = C + $0.5 trillion + $1 trillion + (-$0.5 trillion) 
Solving for C, we get: 
C = $2 trillion - $0.5 trillion - $1 trillion + $0.5 trillion 
C = $1 trillion 
This means consumption is $1 trillion. 
To find out inventory changes, we use the equation: 
GDP = C + I + G + NX 
Rearranging this equation, we get: 
I = GDP - C - G - NX 
I = $2 trillion - $1 trillion - $1 trillion - (-$0.5 trillion) 
I = -$0.5 trillion 
This means there is inventory depletion of -$0.5 trillion. So the correct choice is C.

Exhibit 9-1 GDP and Consumption Data