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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

An American buys a pair of shoes made in Italy. How do the U.S. national income accounts treat the transaction?

  1. a. Net exports and GDP both rise.
  2. b. Net exports and GDP both fall.
  3. c. Net exports fall, while GDP is unchanged.
  4. d. Net exports are unchanged, while GDP rises.

To determine

The purchase of imported commodities on national account transactions.

Explanation

GDP is the summation of monetary value of all the goods and services that are produced by the country within its political boundary, within a financial year. Thus, it will take all the final goods and services produced in a year in the country into account.

Option (c):

The net export is an important component of the national accounts of the economy. The net exports are the value of exports after deducting the value of the imports. Thus, it is the value over the imports of the economy. When the economy demands the imported commodity, then the value of exports will reduce and this will lead to the increased outflow of capital. Since the GDP is the summation of monetary value of all the goods and services produced within the economy, it will not change. Therefore, option ‘c’ is correct.

Option (a):

The net export is an important component of the national accounts of the economy. The net export is the value of exports after deducting the value of the imports. Thus, it is the value over the imports of the economy. When the economy demands the imported commodity, then the value of exports will reduce and this will lead to the increased outflow of capital...

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