The Frank-Heggood Corporation began 2018 with $\$ 50$ million in capital. In 2018, the Frank Heggood Company spent $\$ 400$ million on inventory, \$200 million on new capital, and experienced $10 \%$ depreciation of its capital.

Based on this information, what is the Frank Heggood Company's contribution to gross domestic product (GDP) in 2018, and in what category is that contribution counted?

Choose 1 answer:
(A) $\$ 595$ million is counted in consumption.
(B) $\$ 195$ million is counted in investment, and $\$ 400$ million is counted in consumption.
(c) $\$ 200$ million is counted in investment.
D) $\$ 600$ million is counted in investment.
(E) $\$ 600$ million is counted in consumption.

Question

The Frank-Heggood Corporation began 2018 with $\$ 50$ million in capital. In 2018, the Frank Heggood Company spent $\$ 400$ million on inventory, \$200 million on new capital, and experienced $10 \%$ depreciation of its capital.

Based on this information, what is the Frank Heggood Company's contribution to gross domestic product (GDP) in 2018, and in what category is that contribution counted?

Choose 1 answer:
(A) $\$ 595$ million is counted in consumption.
(B) $\$ 195$ million is counted in investment, and $\$ 400$ million is counted in consumption.
(c) $\$ 200$ million is counted in investment.
D) $\$ 600$ million is counted in investment.
(E) $\$ 600$ million is counted in consumption.

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ Calculate the depreciation of the capital: $Depreciation = Initial \ Capital imes Depreciation \ Rate = \$50 \ million imes 10\% = \$5 \ million$. ‖ ‖ step 2 ⋮ Determine the net investment: $Net \ Investment = Spending \ on \ New \ Capital - Depreciation = \$200 \ million - \$5 \ million = \$195 \ million$. ‖ ‖ step 3 ⋮ Identify the spending on inventory as part of the contribution to GDP: $Inventory \ Spending = \$400 \ million$. ‖ ‖ step 4 ⋮ Sum the net investment and inventory spending to find the total contribution to GDP: $Total \ Contribution = Net \ Investment + Inventory \ Spending = \$195 \ million + \$400 \ million = \$595 \ million$. ‖ ‖ step 5 ⋮ Determine the categories for GDP contribution: Net investment is counted in investment, and inventory spending is counted in consumption. ‖ ∻Answer∻ ‖ The Frank-Heggood Company's contribution to GDP in 2018 is \$195 million in investment and \$400 million in consumption. ‖ ***B*** ∻Key Concept∻ ⚹GDP Contribution Calculation⚹ ∻Explanation∻ ⚹The contribution to GDP is calculated by summing the net investment (spending on new capital minus depreciation) and spending on inventory. The net investment is counted in the investment component of GDP, while inventory spending is counted in the consumption component.⚹◊What is the formula for calculating Gross Domestic Product (G⍭ Generate me a similar question◊$

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