Question

Suppose you go to France in the summer of 2018 and spend $1000 of your hard earned income on a bottle of Chateau Mouton-Rothschild Premier Cru. You bring the bottle back to the United States. Because of this,

1. US GDP decreases because dollars are leaving the country.

2. US GDP remains unchanged.

3. French GDP decreases because the bottle has left France.

4. US GDP increases because of your expenditure on goods and services.

Answer 1

1. US GDP decreases because dollars are leaving the country.

Explanation:

In order to find the value of GDP we need to find the sum of consumption, investment, government purchase & export and deduct the value of imports. This is because when we import, foreign goods or services come and dollars left the country for the payment of the good or service.

When we buy a French bottle, France is exporter and we are importer. As a result dollar leaves United States and France get the payment. This will result in an increase of the GDP of France and a decrease of the GDP of United States.