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Chapter 5: Problem 7

The largest component of GDP is (LO3) a) net exports c) consumption b) investment d) government purchases

Short Answer

Expert verified
In most economies, the largest component of GDP is (c) consumption, which includes expenditures on goods and services by households.

Step by step solution

01

1. Net Exports

Net exports represent the difference between a country's exports and imports in goods and services. It can be positive or negative; a positive value indicates a trade surplus, while a negative value signifies a trade deficit.
02

2. Consumption

Consumption refers to the expenditures on goods and services by households. It includes both durable goods (like cars, appliances) and non-durable goods (food, clothing).
03

3. Investment

Investment represents the expenditures by businesses on capital goods such as machinery, equipment, and buildings, as well as changes in inventories. It has a direct influence on increasing a country's productive capacity.
04

4. Government Purchases

Government purchases refer to the expenditures by local, state, and federal governments on goods and services such as infrastructure, public services, and government employee salaries. Considering the four components of GDP, it is now possible to identify the largest component of GDP.
05

Conclusion

In most economies, consumption (c) among the four components (net exports, consumption, investment, and government purchases) is the largest component of GDP. So, the correct answer is (c) consumption.

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Most popular questions from this chapter

Which is the most accurate statement? (LO8) a) The American personal savings rate would be higher if we counted capital gains as income which is not spent. b) An average propensity to save of \(.02\) means that only 2 percent of the population is saving any of their income. c) Our low savings rate is not considered a problem by many economists. d) Our government savings rate is always negative.

Boyd and Dianne Call earn \(\$ 100,000\) a year. They went deeply into debt after paying \(\$ 75,000\) for their daughter Chelsea's wedding and \(\$ 50,000\) for their daughter Kaylynne's sweet sixteen party. Their behavior might best be described by (LO6, 7,8) a) Milton Friedman b) John Maynard Keynes c) Bruce Steinberg d) Thorstein Veblen

Our consumption spending tends to rise as the stock of liquid assets in the hands of consumers and credit availability (LO6) a) rises, rises b) falls, falls c) rises, falls d) falls, rises

The consumption function tells us that, as income rises, consumption \((\mathrm{LO3})\) a) declines b) remains the same c) rises more slowly than income d) rises more quickly than income

According to the permanent income hypothesis, if a person received a windfall of \(\$ 100,000\), he would spend that year. (LO7) a) some of it c) nearly all of it b) most of it d) all of it
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