Population of 500,000, produce 100,000 cars per year, people purchase 90,000 cars, imports of 50,000 more, government buys 25,000 cars for its police force, 10,000 cars are bought by companies, exports of 65,000 cars.
• Country A’s GDP is: GDP = Consumption (C) + Investment (I) + Government purchases (G) + Net export (EX - IM) = 90,000 + 10,000 + 25,000 + (65,000 - 50,000) = 140,000 cars.
• The composition of GDP by percentage is: consumption - 64%, investment - 7%, government purchases - 18%, net exports - 11%.
• The GDP per capita is GDP/Population = 140,000/500,000 = 0.28 car per person.
• Keynesian economics is the view that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.