Multiple Choice
If nominal GDP is 1800 and the money supply is 450, what is the velocity of money?
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10. Measuring National Output and Income
Expenditure Approach for Measuring GDP
Multiple Choice
Which of the following correctly represents the formula for calculating GDP using its main components?
A
GDP = C + G + (X - M)
B
GDP = C + I + G + X + M
C
GDP = C + I + G + (X - M)
D
GDP = C + I + G - (X + M)
Verified step by step guidance1
Step 1: Understand that GDP (Gross Domestic Product) measures the total value of all final goods and services produced within a country during a specific period.
Step 2: Recall the main components of GDP using the expenditure approach: Consumption (C), Investment (I), Government Spending (G), Exports (X), and Imports (M).
Step 3: Recognize that GDP includes exports because they are goods and services produced domestically and sold abroad, so they add to GDP.
Step 4: Understand that imports are subtracted because they represent spending on goods and services produced outside the country, which should not be counted in domestic production.
Step 5: Combine these components into the correct formula: \(GDP = C + I + G + (X - M)\), where \((X - M)\) is net exports.
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