ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Not change, because there is no change in total aggregate expenditures
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Increase, because investment is included in GDP but consumption is not
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Increase, because consumption is included in GDP but investment is not
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Increase, because investment is weighted more heavily than consumption in calculating GDP.
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Increase because consumption is weighted more heavily than investment in calculating GDP.
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Detailed explanation-1: -In calculating GDP, investment does not refer to the purchase of stocks and bonds or the trading of financial assets. It refers to the purchase of new capital goods, that is, business equipment, new commercial real estate (such as buildings, factories, and stores), residential housing construction, and inventories.
Detailed explanation-2: -An increase in government purchases increases aggregate expenditure but does not change GDP. GDP equals aggregate expenditure and equals aggregate income.
Detailed explanation-3: -Here is a list of items that are not included in the GDP: Sales of goods that were produced outside our domestic borders. Sales of used goods. Illegal sales of goods and services (which we call the black market)
Detailed explanation-4: -Investment or Gross Investment (I)-expenditure by firms on capital equipment, inventories, factories, and machinery. It also includes all non-residential and residential construction (household purchases of new housing). It is also called fixed gross capital formation in the national accounts.