Question

19. Which of the following is included in government expenditures when measuring GDP? A) Social Security payments B) unemployment compensation payments C) pension payment made to past presidents D) the current president's salary 20. Transfer payments A) are included in the government expenditure category in gross domestic product. B) refer to all payments made to households by governments. C) refer to payments made by the government that are not made to purchase a good or service. D) are made by households to firms in exchange for goods and services. 21. Transfer payments are not included in GDP because A) their market value cannot be accurately determined. B) they do not generate additional income. C) they are not purchases of goods or services. D) their value is included in government expenditure Item Millions of dollars Personal consumption expenditure Government expenditure on goods and services Net taxes Gross private domestic investment Imports of goods and services Exports of goods and services estic 10 20 22. Using the information in the table above, calculate the value of GDP. A) $185 million B) $145 million C) $195 million D) $140 million 23. Use the information in the table above to calculate the value of net exports. A) $10 million B) SO C) -$10 million D) $30 million

Answer 1

19 ) The answer is D ( The current president salary)

Government spending  includes salaries of govt employees, purchase of weapons for the military, and any investment expenditure by a government. It does not include social security or unemployment benefits, which are transfer payments

20 ) The answer is C

As Transfer Payments includes those payments which are received for other things, which are not goods and services. Example :- social security or unemployment benefits.

21 ) C

The reason behind this is as the these transfer payments are just a amount of money that has been assigned and they are not included so as to prevent double counting.

Ex:- Suppose you give 10$ to your kid , then this 10$ which you allocated to your child is not part of GDP , but if he spents 8$ out of it to buy icecream. It is already a part of GDP counting , so if we start counting the allotment also , it will raise to double counting and gdp will be calculated wrongly.

22)  GDP = private consumption + gross investment + government investment + government spending + (exports – imports)

as per the table :-

private consumption=80
gross investment=20

government investment =0 (Not Mentioned)

government spending =30

(exports – imports) = 20-10=10

Hence total is 140 million.

(Just to Note :- We have not included net taxes because Expenditure approach of calculating GDP as it is already considered in IOncome approach)

23) The net expors is (exports-imports)

So exports=20 Milllion

Imports =10 Million

Net Exports=20-10=10 Million -------> (Option A)