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Question 1 of 6

Solved Problems
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You must read each slide, and complete any questions on the slide, in sequence.

What is the formula for aggregate expenditure?
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Aggregate expenditure is the sum total of consumption (C), investment (I), government expenditure (G), and net exports [exports (X) minus imports (M)]. All are positive, adding to the GDP, except for imports, because purchases abroad do not countand must be subtracted out.

Which component of domestic aggregate expenditures would the following be considered to be part of?

A federally-funded construction project:

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Since this purchase is conducted by the federal government, it counts as G.

Which component of domestic aggregate expenditures would the following be considered to be part of?

A business’ purchase of a new forklift:

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This is an increase in the capital stock purchased by a firm, so it is investment.

Which component of domestic aggregate expenditures would the following be considered to be part of?

A household’s purchase of a (domestically produced) personal computer:

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Although computers are considered to be capital, household purchases count as consumption.

Which component of domestic aggregate expenditures would the following be considered to be part of?

A household’s purchase of a (foreign-made) personal computer:

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In this case, the computer is an import.

Which component of domestic aggregate expenditures would the following be considered to be part of?

A foreign firm’s purchase of a domestically produced automobile:

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This is an export from the domestic country. It is only an import for the foreign country’s GDP.