Question

14. In computing GDP, which of the following represents a “transfer payment” as defined by the textbook?
(x) You transfer $1,000 from your bank account to a mutual fund.
(y) Your grandfather receives his Social Security check from the U.S. government.
(z) The government sends an unemployment insurance check to Boris after he was laid off from his job.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only

15. Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has
A. caused measured GDP to fall.
B. caused measured GDP to rise.
C. not caused any change in measured GDP.
D. probably changed measured GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted.
E. resulted in a dirtier world because cleaning services never clean houses as well as the household residents.

Answer 1

14. Government transfer payments include social welfare expenditure like old age pensions, disability pensions, unemployment allowances and student grants etc.

Answer: D. (y) and (z) only.

15. The services which do not involve money payment are not counted while computing GDP. All services like cooking, cleaning, and child care which we do for ourselves do not involve any money payment. If we hire cleaners, cookers and child care servants, it involves money payment and cause increase in the value of GDP.

Answer: B. caused measured GDP to rise.