Answer to Question #162140 in Macroeconomics for John Dixon

Question

Question: Which of the following would be considered an investment expenditure in GDP calculation?:

Answer Choices Below [1 Correct Answer] -

A. The Jones buy a house which was built in 1980.

B. The government hires new workers to build a new freeway.

C. Frank purchases a few stars of Microsoft.

D. Kim's Boat Storage Company buys a new boat lift.

*** Please explain and show all work. Thank you very much, will rate!

Answer 1

The answer is B: The government hires new workers to build a freeway.

the formula for the gross domestic product is:

GDP~CONSUMPTION +GOVERNMENT SPENDING +INVESTMENT+NET PROFITS

Consumption is considered an investment expenditure as the new employees recruited in the freeway construction will spend their salary on their daily livelihoods such as food.

The government spends a lot of taxpayer's money to put up the freeway which is an infrastructural investment of the government and the public.

The freeway will assist companies finished goods to reach the market easily and quickly in industries such as horticulture. 

In conclusion, this project affects numerous sectors that are involved in calculating the gross domestic product and is considered an investment expenditure.