An economy produces 500,000 tables valued at $100 each. Households purchase 100,000 tables, of which 50,000 are imported. Businesses purchase 200,000 domestically produced tables, the government purchases 100,000 domestically produced tables, and 50,000 domestically produced tables are sold abroad. The unsold tables at the end of the year are held in inventory by the table manufacturers. What is value of the investment component of GDP?

Question

Quizplus · Accepted Answer

The investment component of GDP includes business purchases and changes in inventory. Businesses purchase 200,000 tables, and 50,000 tables are added to inventory (500,000 produced - 100,000 households - 200,000 businesses - 100,000 government - 50,000 exports = 50,000 inventory). The value of investment is (200,000 + 50,000) * $100 = $25 million for business purchases and $5 million for inventory, totaling $30 million.

An Economy Produces 500,000 Tables Valued at $100 Each