If a U.S. citizen buys a dress made in Nepal by a Nepalese firm, then _____.

(A) U.S. consumption increases, U.S. net exports decrease, and U.S. GDP decreases.
(B) U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected.
(C) U.S. consumption decreases, U.S. net exports increase, and U.S. GDP increases.
(D) U.S. consumption decreases, U.S. net exports increase, and U.S. GDP is unaffected.

Question

18-12-2019
Business

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If a U.S. citizen buys a dress made in Nepal by a Nepalese firm, then _____.

(A) U.S. consumption increases, U.S. net exports decrease, and U.S. GDP decreases.
(B) U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected.
(C) U.S. consumption decreases, U.S. net exports increase, and U.S. GDP increases.
(D) U.S. consumption decreases, U.S. net exports increase, and U.S. GDP is unaffected.

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eikujeyisi eikujeyisi · Answer 1 · 2019-12-18T08:28:15+01:00

Answer:

(B). U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected.

Explanation:

Gross Domestic Product (GDP) of a country measures the total monetary value of all the goods and services it produces.

GDP = Consumption + Investment + Government spending + (Export - Import)

It takes into account consumption by citizens, spending by government, investment and net exports (which is the difference between exports and imports).

When a U.S. citizen buys a dress produced in Nepal by a Nepalese firm, the value of the dress reflects in U.S. 'consumption' and increases it.

U.S. Net export (Export - Import) also drops as import increases, assuming export remains the same.

However, the GDP of U.S. remains the same because the value of the dress, which is already recorded as a part of 'consumption', is cancelled out when 'imports' are deducted.