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

Question

Quizplus · Accepted Answer

GDP is calculated as C + I + G + (X-M), where C is consumption spending, I is investment spending, G is government spending, X is exports, and M is imports. In this case, government expenditure and imports both increase by $400 billion, but the net effect on GDP is zero because the increase in imports (M) offsets the increase in government spending (G) in the calculation of GDP. Hence, GDP does not change.

Everything Else the Same,if Government Expenditure Increases by $400 Billion