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15 March, 01:19

In a certain economy in 2005, GDP amounted to $5,000; consumption amounted to $3,000; government purchases were equal to investment; and the value of imports exceeded the value of exports by $200. It follows that government purchases amounted to

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  1. 15 March, 04:24
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    Government purchases amounted to $1,100.

    Explanation:

    We have to use the following formula to calculate the GDP:

    G DP = C+I+G + (X-M)

    C = consumption

    I = investments

    G = government expenditure

    X = exports

    M = imports

    We replace the formula with the information given: GDP is 5,000, Consumption is 3,000 and X-M is - 200 because the imports exceeded the exports by 200.

    5,000=3,000+I+G-200

    5,000=2,800+I+G

    5,000-2,800=I+G

    2,200=I+G

    Now, we have that the investments plus the government purchases is equal to 2,200 and the situation states that both values are equal, so:

    2,200/2=1,100
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