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Consider the information about the economy of Pakistan

Economics Aug 29, 2020

Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the rupee. The government purchases: 2.50 trillions of rupees. Individuals consume: 11.20 trillions of rupees. Individuals save: 5.16 trillions of rupees. Businesses invest: 1.45 trillions of rupees. Foreigners spend: 0.53 trillions of rupees to purchase Pakistani firms. Pakistan imports: 2.28 trillions of rupees. Pakistan exports: 1.26 trillions of rupees. Calculate Pakistan's GDP. Assume that the values are all current and no conversions need to be made. Give your answer in terms of trillions of rupees, and round to two decimals. Pakistan's GDP: trillions of rupees

Expert Solution

Pakistan's GDP can be counted here by taking different components of GDP. We can calculate the GDP from expenditure side.

From expenditure side GDP = C + I + G + NX

Where C is private consumption and here value of C is given in the data is 11.20 trillions of rupees.

I is private investment expenditure and here data of investment expenditure is 1.45 trillions of rupees.

G is government expenditure or government spending and here in the data G is 2.50 trillions of rupees.

NX is net exports which is equal to export minus import i.e NX = X - M, X is export, M is import. Here, export is 1.26 trillions of rupees and import is 2.28 trillions of rupees. Therefore NX = 1.26 - 2.28 = -1.02 trillions of rupees.

GDP = C + I + G + NX

GDP = 11.20 + 1.45 + 2.50 + (-1.02) trillions of rupees

GDP = 11.20 + 1.45 + 2.50 - 1.02 trillions of rupees

GDP = 14.13 trillions of rupees.

Therefore, Pakistan's GDP = 14.13 trillions of rupees.

Note: Here foreigners purchase of Pakistani firms will not be included in GDP because it is a capital inflow not any goods and services produced in the economy.

Savings we also do not take into account when we calculate GDP from expenditure side. Savings are invested through different ways.

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