In a certain economy in 2005,government purchases exceeded investment by $2,000;investment amounted to 1/6 of GDP;consumption amounted to 1/2 of GDP;and the economy's imports exceeded its exports by $500.It follows that GDP amounted to

Question

Quizplus · Accepted Answer

Let's use the formula for GDP: GDP = Consumption + Investment + Government purchases + Net Exports

We know that:

- Investment = 1/6 of GDP
- Consumption = 1/2 of GDP
- Government purchases - Investment = $2,000 (which means that Government purchases = Investment + $2,000)
- Net Exports = Exports - Imports = -$500 (which means that Imports > Exports)

Plugging in the values, we get:

GDP = Consumption + Investment + Government purchases + Net Exports
GDP = (1/2)GDP + (1/6)GDP + (GDP/6) + (-$500)
Multiplying by 6 to clear the fractions:
6GDP = 3GDP + GDP - $3,000 - $3,000
6GDP = 4GDP - $6,000
2GDP = $6,000
GDP = $3,000 * 2 = $6,000 + $3,000 = $9,000

Therefore, the answer is C) $9,000.

In a Certain Economy in 2005,government Purchases Exceeded Investment by $2,000;investment