An economy produces 1,000,000 computers valued at $2,000 each. Households purchase 200,000 computers, of which 100,000 are imported. Businesses purchase 300,000 domestically produced computers, the government purchases 300,000 domestically produced computers, and 100,000 domestically produced computers are sold abroad. The unsold computers at the end of the year are held in inventory by the computer manufacturers. What is the value of the investment component of GDP?

Question

Quizplus · Accepted Answer

Investment component of GDP includes only the value of goods produced during the current year that are not immediately consumed but rather held in inventory for future use or sold. 
Thus, investment component of GDP = value of domestically produced computers that are not sold and are held in inventory by the computer manufacturers.
Total domestically produced computers = 1,000,000 - 100,000 (exports) = 900,000
Computers sold domestically = 200,000 + 300,000 + 300,000 = 800,000
Unsold computers held in inventory = 900,000 - 800,000 = 100,000
Value of investment component of GDP = 100,000 × $2,000 = $200,000,000 or $1.0 billion. Hence, the correct choice is (D).

An Economy Produces 1,000,000 Computers Valued at $2,000 Each