Suppose that for the economy of Utopia, we have the following information for 2018: consumption expenditures = $5,000; wages = $3,500; gross private domestic investment = $1,200; government expenditures = $2,000; exports = $900; imports = $1,100. Using the expenditure approach what would the Gross Domestic Product (GDP) be for Utopia in 2018?
A) $6,200
B) $8,000
C) $8,400
D) $11,500
E) $11,900
GDP = consumption expenditures + gross private domestic investment + government expenditures + exports - imports
GDP = $5,000 + $1,200 + $2,000 + $900 - $1,100
GDP = $8,000
Therefore, the answer is B) $8,000.
To calculate the Gross Domestic Product (GDP) using the expenditure approach, we need to sum up the four components: consumption expenditures (C), gross private domestic investment (I), government expenditures (G), and net exports (NX).
The formula for GDP using the expenditure approach is:
GDP = C + I + G + NX
Given the following information:
Consumption expenditures (C) = $5,000
Gross private domestic investment (I) = $1,200
Government expenditures (G) = $2,000
Exports (EX) = $900
Imports (IM) = $1,100
Net exports (NX) can be calculated as the difference between exports and imports, so:
NX = EX - IM
NX = $900 - $1,100
NX = -$200 (since imports exceed exports)
Now, we can substitute the values into the GDP formula:
GDP = C + I + G + NX
GDP = $5,000 + $1,200 + $2,000 + (-$200)
GDP = $8,000
Therefore, the GDP for Utopia in 2018 is $8,000.
The correct answer is B) $8,000.