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Using the expenditure approach to measure the Gross Domestic Product of an economy at any given...

Using the expenditure approach to measure the Gross Domestic Product of an economy at any given period of time, answer the questions below.
a) Since it is counted as investment, why doesn't the purchase of equipment from China by a U.S. corporation increase U.S. GDP?
b) The same U.S. corporation builds new housing. In the building process they have to buy building materials. What effect would this have on GDP? Explain.
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Answer #1

a) The purchase of foreign equipment is counted as investment, the purchase of equipment from China by a U.S. corporation doesn't increase U.S. GDP because GDP measures only the value of production within the geographic borders of the United States. In order to avoid including the value of the imported equipment, imports are subtracted from GDP.

b) U.S. corporation builds new housing and buying building materials in the process would is likely to cause an increase in consumer spending. This will cause higher Aggregate Demand (AD), and it is likely to cause an increase in Real GDP and a higher rate of economic growth.

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