Question

Categorize each of the following into C; I; G; X; M:
4.1 IU buys 100 sweaters and charges $ 50 a piece. They are not sold.
4.2 IU buys 100 sweaters and charges $50 a piece. They are sold.
4.3 You buy a new laptop for $600. It is made in China.
4.4 The government builds 100 miles of road at $1000 per mile.
4.5 GM buys 15000 tires from a domestic supplier at $70 per tire.

Answer 1

GDP = C+. I+ G+ X- M

where C : spending by households and individuals

I : business fixed spending , inventory investment , public investment , residential construction

G : expenditure by government on goods and services

X : exports of goods and services

M : imports of goods and services

a) IU buys 100 sweaters and charges $ 50 a piece. They are not sold.: This will be a component of investment ( inventory investment ). Inventory investment include finished and semi finished goods that have been produced in the current year but not sold .

b) IU buys 100 sweaters and charges $50 a piece. They are sold.

Since the sweater are produced and sold , it will a component of Consumption , representing aggregate expenditure by households.

c) You buy a new laptop for $600. It is made in China. : this is an import of good so will. be included in M

d) The government builds 100 miles of road at $1000 per mile. : this will also be. part of investment and will fall under the category of public investment

e) GM buys 15000 tires from a domestic supplier at $70 per tire. : this will be included in Consumption , C as it represents spending by private firm.