The table given below reports the value of real GDP and its components consumption (C), investment (I), exports, and imports for two consecutive years.
Table 10.3
$\begin{array}{l}
\begin{array}{|c|c|c|c|c|c|}
\hline & \text { Equilibrium } & & & & \
\hline & \text { Real GDP } & \text { C } & \text { I } & \text { Exports } & \text { Imports } \
\hline \text { Year 1 } & \$ 9,350 & \$ 7,500 & \$ 1,350 & \$ 1,800 & - \
\hline \text { Year 2 } & \$ 11,450 & \$ 8,900 & - & \$ 2,350 & \$ 1,600 \
\hline
\end{array}\
\text { Assume that government spending is zero for this economy. }
\end{array}$
-Refer to Table 10.3. The change in investment spending from year 1 to year 2 is:

Question

The table given below reports the value of real GDP and its components consumption (C), investment (I), exports, and imports for two consecutive years.
Table 10.3
 $\begin{array}{l}
\begin{array}{|c|c|c|c|c|c|}
\hline & \text { Equilibrium } & & & & \
\hline & \text { Real GDP } & \text { C } & \text { I } & \text { Exports } & \text { Imports } \
\hline \text { Year 1 } & \$ 9,350 & \$ 7,500 & \$ 1,350 & \$ 1,800 & - \
\hline \text { Year 2 } & \$ 11,450 & \$ 8,900 & - & \$ 2,350 & \$ 1,600 \
\hline
\end{array}\
\text { Assume that government spending is zero for this economy. }
\end{array}$
-Refer to Table 10.3. The change in investment spending from year 1 to year 2 is:

Quizplus · Accepted Answer

The formula for calculating GDP is:

GDP = C + I + G + X – M

where, 
C = consumption 
I = investment 
G = government spending 
X = exports 
M = imports

As government spending is zero for this economy, the formula reduces to:

GDP = C + I + X – M

From the table, we can see that:

GDP1 = $9,350 
C1 = $7,500 
I1 = $1,350 
X1 = $1,800 
M1 = unknown

We can calculate M1 using the formula:

GDP1 = C1 + I1 + X1 – M1

$9,350 = $7,500 + $1,350 + $1,800 – M1

M1 = $300

Therefore, M1 = $300.

Similarly, for year 2:

GDP2 = $11,450 
C2 = $8,900 
X2 = $2,350 
M2 = $1,600

We can calculate I2 using the formula:

GDP2 = C2 + I2 + X2 – M2

$11,450 = $8,900 + I2 + $2,350 – $1,600

I2 = $450

Therefore, the change in investment spending from year 1 to year 2 is:

I2 – I1 = $450 – $1,350 = -$900

However, we need to consider that investment spending decreased from year 1 to year 2, which means there is a negative change in investment spending. Therefore, the correct answer is option B.

The Table Given Below Reports the Value of Real GDP