Question

In a certain economy in 2005, the value of imports amounted to 80 percent of the value of exports. Consumption, investment, and government purchases added up to $5,000. The market value of all final goods and services produced within the economy was $5,500. It follows that the economy exported_________.

a. $500 worth of goods and services.
b. $1,000 worth of goods and services.
c. $1,500 worth of goods and services.
d. $2,500 worth of goods and services.

Answer 1

d. $2,500 worth of goods and services.

Step-by-step explanation:

The national income identity is given by:

GDP = C + I + G + EX − IM.

Market value of all final goods and services produced within the economy was $5,500 => GDP = $5,500

Consumption (C), investment (I), and government purchases (G) added up to $5,000 => C + I + G = $5,000

=> EX - IM = GDP - (C + I + G) = $500

Imports amounted to 80 percent of the value of exports => IM = 0.8EX

=> EX - 0.8 EX = $500

=> EX = $2,500