Question

If the governor of North Carolina Roy Cooper buys $10, 000 worth of ventilators from overseas by using his own salaries, and donates the ventilators as emergency storage during the pandemic, keeping other things equal, how does the national income accounts of NC treat the transaction?

A. consumption and GDP both rise by $10, 000.

B. Consumption increases by $10, 000, while net exports fall by $10, 000, thus GDP is unchanged.

C. consumption, net exports and GDP are unchanged.

D. net exports and GDP both rise by $10, 000.

Answer 1

The answer is (b)

since the ventilators are imported, net exports = exports - imports will fall by 10000

Since ventilator is a consumption good, the expenditure on them by Roy Cooper increase the consumption expenditure

GDP = conusmption + investment + government expenditure + net exports

thus, GDP will be unchanged as consumption increase by 10000 and net exports fall by 10000

All, other options are wrong as they show a wrong imapct on consumption or net exports or GDP.