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 the value of the private-sector investment component of GDP?
A) $10 billion.
B) $20 million.
C) $25 million.
D) $30 million.
E) $50 million.

Question

Quizplus · Accepted Answer

Private-sector investment component of GDP is the total value of all final goods and services produced by businesses and households for the purpose of investment. From the given information, we have:

Private Investment = Value of tables produced for businesses + Value of tables held in inventory by table manufacturers

Private Investment = (200,000 * $100) + (150,000 * $100)

Private Investment = $20,000,000 + $15,000,000

Private Investment = $35,000,000

However, we only need the value of domestically produced tables as the imported tables were not produced in the domestic economy. So the private-sector investment component of GDP would be:

Private Investment = (200,000 * $100) + (100,000 * $100)

Private Investment = $20,000,000 + $10,000,000

Private Investment = $30,000,000

Therefore, the best answer is D) $30 million.

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