Question

Answer the following question related to Chapter 21 of the text. This activity has a value of 15 points

Briefly define each of the following concepts, and present an example of each case: (value: 3 ea)

to. Consumption

b. Gross private domestic investment

c. Government consumption and investment purchases (in GDP)

d. Transfer payments (not in GDP)

and. Exports

Answer 1

a) Consumption: It is the purchase of goods and services by households. People consume food to survive, clothes to wear, cars to ride etc.

b) Gross Private Domestic Investment: It is the amount of money used to raise capital assets or to raise inventories. Producers invest in their machineries, households invest on their residential houses.

c) Government consumption and investment purchases: This is the amount of money used by government to enhance efficiency in economy or to distribute money to needy section. Money is invested to build hospitals, schools / colleges, highways etc.

d) Transfer Payment: These are the payment made in kind such as subsidy to poor such that they can afford necessary goods.