Answer to Question #165493 in Macroeconomics for Veronica

Question

Assume the economy in the United States has the following data:

• Consumption = $12 trillion
• Defense spending = $3 trillion
• Government Purchases = $5 trillion
• Net Exports = -$100 billion
• Imports = $500 billion
• Investment Spending = $2 trillion
• Social Security Payments = $1.5 trillion
• Household Income = $19 trillion
• Exports = $400 billion
• Rate of Unemployment = 7.8%

1. What is the GDP? Show your calculations.

2. Using only the data above, is the economy in a recession?

Answer 1

Answer to Task#165493

1. GDP = C + I + G + (X-M)

Where C - Household consumption expenditures / personal consumption expenditures

I - Gross private domestic investment

G -Government consumption and gross investment expenditures

X - Gross exports of goods and services

M - Gross imports of goods and services

So that our

GDP = $12t+2 t+ (5t+3t+1.5t)+(400b-500b)$

$=23.5t-100b=23.4999t$

Where b is billion and t is trillion. Therefore the GDP will be equal to $23.4999 trillion.

2. Natural rate of unemployment is 4% to 5% hence, this economy is in a recession since the unemployment rate (7.8%) is higher than natural unemployment rate.