Ali, a Pakistani resident, purchased a car worth Rs. 3, 00,000 that was produced entirely in China. Does this transaction affect Pakistan’s GDP? Justify your answer.
Note: Your answer must be within the range of 50-100 words.
Solution:
Yes this transaction will cause a decrease in Pakistan’s GDP.
GDP = C + I + G + NX
And
NX = Total Export – Total Import
This transaction will decrease the Net export which will also decrease the GDP.
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GDP of a country is always equal to the = Consumption(C) + Investment(I) + Government purchases(G) + Net Export (NX)
in our question it has been said that car was manufactured by China. it means that it was imported from china.
formula for Net Export is = tolal export - total import
so, if we will import anything than it will decrease our net exports...
due to a decrease in net export will cause a decrease in GDP,,
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