Suppose that this year a small country has a GDP of \(100 billion. Also assume that Ig = \)30 billion, C = \(60 billion, and Xn = − \)10 billion. What is the value of G?

a. \(0

b. \)10 billion

c. \(20 billion

d. \)30 billion

The expenditure method adds the total amount of money spent or expenditure on finished goods and services stock of capital in a year to find the GDP of the country.

$GDP=C+I_g+G+X_n$

C is the personal consumption expenses of the households to buy the market goods and services

I_gis the gross investment expenses of the firms on capital goods.

G is the government purchases

X_n is the net exports, a difference between foreign spending on domestically produced goods (exports) and domestic spending on foreign goods (imports).

Given, C is $60 billion, I_g is $30 billion, X_n is -$10 billion, and GDP is $100 billion.

$$\begin{gathered} GDP=C+I_g+G+X_n \\ 100,000,000,000=60,000,000,000+30,000,000,000+G+\left(-10,000,000,000\right) \\ G=100,000,000,000-80,000,000,000 \\ G=20,000,000,000 \end{gathered}$$

Thus, government expenditure is $20 billion, and option ‘c’ is correct.