Running Head: Week 6 1
Week 6 Individual Work
Everest University Online
Running Head: Week 6 2
1. What is the impact on GDP if consumer spending increases? Would the answer be different if the consumer spending was directed toward foreign goods?
The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
GDP = C + G + I + NX
"C" is equal to all private consumption, or consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)
Therefore, an increase in consumer spending would result in, ceteris paribus, an increase in GDP.
If the spending was directed towards foreign goods, it would positively affect GDP as consumer spending is increasing, but would simultaneously negatively affect GDP as it would increase imports. Which effect would outweigh the other depends on the nature of the good. (“investopedia”)