The country of Freedonia has a GDP of $4000, consumption of $1500, and government purchases of $900. What does this situation imply?
A) Investment is equal to -$1600.
B) Investment plus net capital outflow is equal to $1600.
C) Investment plus net exports is equal to $2400.
D) Saving is equal to -$2400.

Question

Quizplus · Accepted Answer

GDP (Gross Domestic Product) is calculated as the sum of consumption (C), investment (I), government purchases (G), and net exports (NX), which can be represented by the equation: GDP = C + I + G + NX. In this scenario, with a GDP of $4000, consumption of $1500, and government purchases of $900, the equation becomes $4000 = $1500 + I + $900 + NX. Simplifying, we find that I + NX = $1600, indicating that the sum of investment and net capital outflow (or net exports) equals $1600.

The Country of Freedonia Has a GDP of $4000, Consumption