Re: isi

Posted by aditi5000 on May 11, 2012; 5:28am
URL: http://discussion-forum.276.s1.nabble.com/isi-tp7542957p7549255.html

1. (a) Suppose in year 1 economic activities in a country constitute only production of
wheat worth Rs. 750. Of this, wheat worth Rs. 150 is exported and the rest remains
unsold. Suppose further that in year 2 no production takes place, but the unsold wheat of
year 1 is sold domestically and residents of the country import shirts worth Rs. 250. Fill
in, with adequate explanation, the following chart :

Year GDP = Consumption + Investment + Export - Import
1 750           0                   600              150       0    
2 -250            600            -600               0       -250


A sale out of inventory is a combination of positive spending (the purchase) and negative spending (inventory disinvestment), so it does not influence GDP. This treatment of inventories ensures that GDP reflects the economy’s current production of goods and services.
GDP is the value of CURRENT production, so no production means 0 GDP and imports means negative GDP.
I am so so so sorry for the confusion. But I referred to all this from a text book so now this is correct.

Imports may or may not be consumed by households/firms/G... the point is that they are from the 4th sector of the economy and they get accounted for only there. I know its tempting to add it to C by households but that's not the right way to account for it.