QuestionJuly 28, 2025

What components of GDP would each of the following transactions affect? How does it affect the component; Le.does the component increase or decrease?[Remember: GDP=C+I+G+(X-M)] 1. A family buys a new kitchen appliance. 2. James buys a new house. 3. You buy a pizza. 4. California repaves Highway 101. 5. A couple buys a bottle of wine from France.

What components of GDP would each of the following transactions affect? How does it affect the component; Le.does the component increase or decrease?[Remember: GDP=C+I+G+(X-M)] 1. A family buys a new kitchen appliance. 2. James buys a new house. 3. You buy a pizza. 4. California repaves Highway 101. 5. A couple buys a bottle of wine from France.
What components of GDP would each of the following transactions affect? How does it affect the component; Le.does the
component increase or decrease?[Remember: GDP=C+I+G+(X-M)]
1. A family buys a new kitchen appliance.
2. James buys a new house.
3. You buy a pizza.
4. California repaves Highway 101.
5. A couple buys a bottle of wine from France.

Solution
4.7(123 votes)

Answer

1. Consumption (C) increases; 2. Investment (I) increases; 3. Consumption (C) increases; 4. Government Spending (G) increases; 5. Net Exports (X-M) decreases. Explanation 1. Identify the GDP component for a family buying a new kitchen appliance This transaction affects Consumption (C) as it is a purchase of goods by households. It increases the Consumption component. 2. Identify the GDP component for James buying a new house This transaction affects Investment (I) because purchasing a new house is considered residential investment. It increases the Investment component. 3. Identify the GDP component for buying a pizza This transaction affects Consumption (C) as it is a purchase of goods by households. It increases the Consumption component. 4. Identify the GDP component for California repaving Highway 101 This transaction affects Government Spending (G) since it involves government expenditure on infrastructure. It increases the Government Spending component. 5. Identify the GDP component for a couple buying a bottle of wine from France This transaction affects Net Exports (X-M). Since the wine is imported, it increases Imports (M), which decreases Net Exports.

Explanation

1. Identify the GDP component for a family buying a new kitchen appliance<br /> This transaction affects Consumption (C) as it is a purchase of goods by households. It increases the Consumption component.<br /><br />2. Identify the GDP component for James buying a new house<br /> This transaction affects Investment (I) because purchasing a new house is considered residential investment. It increases the Investment component.<br /><br />3. Identify the GDP component for buying a pizza<br /> This transaction affects Consumption (C) as it is a purchase of goods by households. It increases the Consumption component.<br /><br />4. Identify the GDP component for California repaving Highway 101<br /> This transaction affects Government Spending (G) since it involves government expenditure on infrastructure. It increases the Government Spending component.<br /><br />5. Identify the GDP component for a couple buying a bottle of wine from France<br /> This transaction affects Net Exports (X-M). Since the wine is imported, it increases Imports (M), which decreases Net Exports.
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