AP Macroeconomics Practice Question 1
An American buys an entertainment system that was manufactured in China. How does the U.S. national income accounts treat this transaction?
Correct Answer: B
B GDP is the sum of consumption, investment, government spending, and net exports (in equation form: GDP = C + I + G + X). In this case, as the American is buying something made in China, net exports would fall, causing GDP to fall. The answer is (B).