Country 1 has a gross domestic product (GDP) of $75 billion. The country has a large public sector, which accounts for $25 billion of spending. Consumer spending and investment spending account for $25 billion and $15 billion respectively. What are the values of Country 1’s imports and exports?
A.
Country 1’s imports are worth $15 billion and its exports are worth $10 billion.
B.
Country 1’s imports are worth $25 billion and its exports are worth $15 billion.
C.
Country 1’s imports are worth $20 billion and its exports are worth $30 billion.
D.
Country 1’s imports are worth $10 billion and its exports are worth $25 billion.
To find the values of Country 1's imports and exports, we need to use the GDP equation:
GDP = Consumer Spending + Investment Spending + Government Spending + (Exports - Imports)
Substitute in the given values:
$75 billion = $25 billion + $15 billion + $25 billion + (Exports - Imports)
$75 billion = $65 billion + (Exports - Imports)
$75 billion - $65 billion = Exports - Imports
$10 billion = Exports - Imports
Since the country has a trade deficit (imports > exports), we can calculate the values using the options:
A. Country 1’s imports are worth $15 billion and its exports are worth $10 billion. (Incorrect - total is $25 billion)
B. Country 1’s imports are worth $25 billion and its exports are worth $15 billion. (Correct)
C. Country 1’s imports are worth $20 billion and its exports are worth $30 billion. (Incorrect - total is $50 billion)
D. Country 1’s imports are worth $10 billion and its exports are worth $25 billion. (Incorrect - total is $35 billion)
Therefore, the values of Country 1's imports and exports are:
Imports = $25 billion
Exports = $15 billion
Therefore, the answer is B. Country 1’s imports are worth $25 billion and its exports are worth $15 billion.