# Question: Challenge Problem This exercise requires knowledge of probabilities and expected

Challenge Problem (This exercise requires knowledge of probabilities and expected values.) Following are data relating to a nation’s operations last year.
Capital consumption allowances ........ \$150 million
Undistributed corporate profits ........... 40 million
Personal consumption expenditures ....... 450 million
Personal savings ............... 50 million
Corporate inventory valuation adjustment ..... 25 million
Federal government deficit ............ -30 million
Government purchases of goods and services .... 10 million
State and local governments surplus ........ 1 million
Net exports of goods and services ........ -2 million
Gross private domestic investment ........ 200 million
a. Determine the nation’s gross domestic product (GDP).
b. How would your answer change in (a) if exports of goods and services were \$5 million and imports were 80 percent of exports?
c. Show how the GDP in (a) would change under the following three scenarios:
Scenario 1 (probability of .20) that the GDP components would be 120 percent of their values in (a).
Scenario 2 (probability of .50) that the GDP component values used in (a) would occur.
Scenario 3 (probability of .30) that the GDP components would be 75 percent of their values in (a).
d. Determine the nation’s gross savings last year.
e. Show how your answer in (d) would change if each account simultaneously increases by 10 percent.
f. Show how your answer in (d) would change if each account simultaneously decreases by 10 percent.
g. Show how your answer in (d) would have changed if Capital consumption allowances had been 10 percent less and personal consumption expenditures had been \$400 million.

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