A number of economists contend that official measures of U.S. gross private investment expenditures are understated. Answer parts (a) and (b) below to determine just how understated these economists believe that officially measured investment spending may be.
a. Household spending on education, such as college tuition expenditures, is counted as consumption spending. Some economists suggest that these expenditures, which amount to 6 percent of GDP, should be counted as investment spending instead. Based on this 6 percent estimate and the GDP computations detailed in Figure 8-3 on page 173, how many billions of dollars would shift from consumption to investment if this suggestion was adopted?
b. Some economists argue that intangible forms of investment-business research spending, educational expenses for employees, and the like-should be included in the official measure of gross private domestic investment. These expenditures, which amount to about 9 percent of GDP, currently are treated as business input expenses and are not included in GDP. Based on this 9 percent estimate and the GDP computations detailed in Figure 8-3 on page 173, how much higher would gross private domestic investment be if intangible investment expenditures were counted as investment spending?
c. Based on your answers to parts (a) and (b), what is the total amount that gross private domestic investment may be understated, according to economists who argue that household education spending and business intangible investments should be added? How much may GDP be understated?

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Panel (a) Panel (b) Foreign -4.1 Rent 1.8% Interest 5.1% Government 23.3% Profit 18.5% Business 11.6% Household sector 69.2% Wages 55.0% Nonincome expense 19.6% Expenditure Approach Income Approach