How is your purchase in Pakistan of a Rs40,000 BMW automobile that was produced entirely in Germany recorded in the Pakistan's GDP accounts ?
Correct answer: A. Consumption in increase by Rs40,000 and net export decreases by Rs40,000
- A. Consumption in increase by Rs40,000 and net export decreases by Rs40,000
- B. Net exports increase by Rs40,000
- C. There is no impact because this transaction does not involve domestic production
- D. Investment increased by Rs40,000 and net exports increases by Rs40,000
Explanation
The imported BMW raises consumption by Rs40,000 but also raises imports, reducing net exports by Rs40,000. These effects cancel in GDP because the car was not produced domestically.
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