Question

Question 1 The following table provides the information about major categories of U.S. expenditure, except net exports, in billions of US dollars in the third quarter of 2018. The table also shows the incomes of American factors of production in foreign countries and foreign factors of production in the United States. Use the information to calculate items (a) and Consumption expenditure Investment Government purchases GDP Income of American factors of production abroad Income of foreign factors of production in the United States Billions of dollars 14050.5 3710.7 3550.5 20658.2 1071.5 816.5 a. (2 points) Calculate the U.S. net exports. Do you consider it a trade surplus or a trade deficit? b. (2 points) Calculate the US Gross National Product (GNP)

Answer 1

1. Let's understand what is Net Exports first;

Net export = Exports - Imports (of goods and services)

Please see the question carefully as it has given the value of GDP which is $ 20658.2 billion.

GDP (Gross Domestic Product) is a monetary value of all finished goods and services produced in a country's border during a given time.

Now let's understand how GDP is calculated;

GDP = C + I + G + Xn

C= Consumer consumption

I = Gross Investment

G = Government Expenditure

Xn = Exports - Imports

The question has already given us the values for all above so let's input these values;

GDP = C+I+G+Xn

20658.2 = 14050.5+3710.7+3550.5+Xn

Hence,

Xn=20658.2-14050.5-3710.7-3550.5

Xn = -653.5

Therefore US net exports is = -653.5 Billion Dollars for Q3 2018

What is a trade surplus or a trade deficit?

Trade Surplus is a situation when the country's exports are higher than its imports i.e. the number of goods and services a country exports is higher than the number of goods and service imports. That means its net export is positive. In the above example, we see that the net export value is not positive but is negative.

Trade Deficit is a complete opposite to Trade Surplus. In Trade Deficit the country's imports are higher than its exports thus creating a negative net export situation which we see in our example.

So answer to the first question is Trade Deficit.

2. Now let's understand what is GNP?

GNP = Gross National Product is an extended version of GDP. GDP limits its interpretation within the country's geographical boundaries. Whereas GNP includes net overseas activities performed by its nationals.

Therefore GNP = GDP + (Net Income of domestic residents abroad - Net Income of foreign residents in domestic)

Here, it will be Income of Americans factors of production abroad - Income of foreign factors of production in the United States.

Let's input the figures and calculate GNP;

GNP=20658.2+(1071.5-816.5)

Therefore US Gross National Product (GNP) = 20913.2 Billion Dollars