Why Are Exports Added to (Rather Than Subtracted From) the Other

question 177

Multiple Choice

Why are exports added to (rather than subtracted from) the other expenditure components to arrive at GDP using the expenditure method?

• A) because exports account for those goods that were produced in the economy but that were not devoted to domestic consumption, used for domestic investment, or provided as government goods
• B) because exports have a higher profit margin for manufacturers than do similar products sold in domestic markets
• C) because exported goods are not valued properly, due to problems with the purchasing power parity index
• D) because it is only through exporting that we can generate jobs in our own economy

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Definitions:

Economic Profits

The surplus remaining after deducting all costs, including opportunity costs, from total revenues, indicating a firm's financial performance beyond breaking even.

Decreasing Returns to Scale

A situation in which, as the scale of production increases, the output increases at a diminishing rate, resulting in reduced efficiency.

Price-Inelastic

Describes a situation where the quantity demanded or supplied changes little when the price changes.

Prisoner's Dilemma

A scenario in game theory where two individuals acting in their own self-interest do not produce the optimal outcome.