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In which of the following situations would GDP not change?

A. As domestic consumers buy fewer tobacco products, tobacco manufacturers instead sell their products, at the same price, to foreign buyers.

B. Domestic consumers begin to buy less imported wine and instead spend just as much money on domestically produced wine.

C. More and more domestic consumers opt to build a new home, rather than spending the same money on an already existing home.

D. Without reducing the number of automobiles sold, domestic automobile producers decide to reduce the number of automobiles they produce, rather than producing cars that would end up as unsold inventory.

Answer :

Final answer:

GDP would not change when domestic tobacco consumption decreases but is matched by an increase in exports. Other scenarios imply a potential shift in aggregate demand and a possible change in GDP due to different contributing factors like imports, domestic production, and investment.

Explanation:

In which of the following situations would GDP not change? Among the options provided, GDP would not change in the scenario where domestic consumers buy fewer tobacco products, tobacco manufacturers instead sell their products, at the same price, to foreign buyers.

This is because the overall level of economic activity remains unchanged; domestic consumption has decreased but has been offset by an equivalent increase in exports. GDP, being the total market value of all final goods and services produced within a country, remains constant if the spending on those goods and services shifts without a change in the actual production or overall expenditure.

On the other hand, most other scenarios provided do indicate a potential change in GDP. If domestic consumers start to buy less imported wine and spend that money on domestically produced wine, this would reduce imports and increase domestic production, causing a shift in aggregate demand (AD) towards domestically produced goods, which could increase GDP.

If more consumers opt to build a new home instead of buying an existing one, it would add to investment and possibly increase GDP, as the construction of new homes is considered part of gross investment in GDP calculations. Lastly, if producers adjust production to avoid unsold inventory, it implies changes in investment in inventories, which is also a component of GDP.

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