Question

The national income accounting identity breaks GDP into four expenditure components. To which of the four components would the following belong: Ten trucks made by Nissan (located in Japan) and purchased by Fed EX (a US firm) to replace its aging rolling stock.

a. Consumption expenditures.
b. Investment.
c. Both investment expenditures and imports.
d. Changes in business inventories.

Answer 1

The purchase of trucks made by Nissan and bought by FedEx would be categorized under both investment, as it's business spending on long-term capital, and net exports, since these are imports.

Step-by-step explanation:

The national income accounting identity breaks down Gross Domestic Product (GDP) into different expenditure components: consumption, investment, government spending, and net exports. When determining into which expenditure component the purchase of ten trucks made by Nissan (located in Japan) and purchased by FedEx (a US firm) would fall, it's important to consider the nature of the transaction. This purchase would be categorized as investment since it is business spending on capital goods that will be used for more than one year. However, because these trucks are produced by Nissan in Japan, it also impacts the net exports component as this transaction would be considered an import. Therefore, the correct answer is that this spending belongs to both investment expenditures and imports.