Chapter 16, Problem 12AA

To determine

To ascertain:the percentage of GDP is accounted for by total government purchases.

Explanation of Solution

Total spending in an economy is calculated by the Aggregate Expenditure. The aggregate spending is the amount of all the expenditure incurred by the variables in the economy over a given period of time. The equation is: C + I + G + NX = AE. The aggregate spending specifies the total amount that businesses and households are preparing to spend on goods and services at each sales level.

The federal government paid for national defense; the salaries of members of Congress, federal judges, and the employees of executive departments such as the State Department; and Public − works projects. Such conditions continued until about 1970. While the local and the state government spending for such items as sewers, roads, and school increased rapidly.Total government purchases represent about 19 percent of GDP. This figure does not include such items as interest payments on the national debt and transfer payments such as welfare programs.

Economics Concept Introduction

Introduction: GDP is the final value of the goods and services produced within a country's territorial borders over a defined period of time, usually one year. The rate of GDP growth is a important measure of a country's economic success.