Answer to Question #107594 in Microeconomics for Amir Hossain

Question

3. Define the following carefully and give an example of each:
(a) Consumption, (b) Gross private domestic investment, (c) Government consumption and investment purchases (in GDP), (d) Government transfer payment (not in GDP), and (e) Exports.

Answer 1

(a) Consumption - the use of goods and services by households for example when a when many members of the population go shopping

(b) Gross private domestic investment- This is the measure of physical investment used in computing GDP in the measurement of a country’s economic activity. For example the Non-residential investment

 (c) Government consumption and investment purchases (in GDP) - This is the standard government measure of purchases undertaken by the government sector. It measures portion of GDP that is purchased by the government sector and which is used to pursue government functions. Example

(d) Government transfer payment (not in GDP)-  this is the redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. For example financial aid, social  or government making subsidies for certain businesses.

 (e) Exports- goods that are produced in one country and then sold within another country; for example, if a producer in the United States makes 10 vehicles and sells them to a car company in United Kingdom these vehicles would be counted as Exports for the United States.