Assume that Country A has a population of 500,000 and only produces 1 good: cars. Country A produces 100,000 cars per year. The people in Country A purchase 90,000 cars, but there are not enough cars to fulfill all the demand. They decide to import 50,000 more. The government buys 25,000 cars for its police force, and 10,000 cars are bought by companies to transport employees to other locations to work. They also export 65,000 cars to nearby countries for sale. Discuss the following:
GDP =Private consumption + gross investment + government Spending + (exports -imports) = 90,000 + 25000 + 10000 +(65000-50000)=140000
What is the composition of GDP by percentage?
Private consumption = 90,000/140000 x 100% = 64. 3%
government spending = 25000/140000 x 100% = 17.9%
gross investment 10000/140000 x 100% = 7.1%
Export -import difference 15000/140000 x 100% = 10.7%
- What is the GDP per capita?
GDP per capita = GDP/Population = 140000/500000 = 0.28
How does this relate to Keynesian economics?
This relate to keynesian economies since the government tend to control the volume of export and import. Despite the fact that the local manufacturer does not satisfy the population, a large volume is exported and the government imports cars to cross the demand gap. Importing is a way of increasing the government expenditure though it is not necessary, it is just done to pull the country’s economy out of depression.
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