Answer to Question 1
The largest category of expenditures is consumption expenditures. These are purchases by households of final goods and services. They can be divided into purchases of services, nondurable goods (goods that last less than 3 years) and durable goods (goods that last for longer than 3 years). Consumption spending does not include purchases of housing. Spending by firms on new factories, office buildings, machinery and inventories and spending by households on new houses is the second category of spending called investment spending. Government consumption and gross investment make up the third category of spending called government purchases. Government purchases include purchases by state, federal, and local governments. Finally, net export spending makes up the last category of expenditures. This is exports minus imports. Imports are purchases of foreign goods and services by the domestic economy, and exports are purchases of domestic goods and services by foreigners.
Answer to Question 2
A
