Question

1. When a business such as CarMax sells a used car to an individual for $9,000 then no part of this transaction counts in GDP because the car is used. T/F

2. When your parents pay for your school tuition this counts as a consumption expenditure. T/F

3. The government pays social security benefits to your grandfather every month. When your grandfather spends his entire social security check on groceries at the supermarket this counts as :

a.) investment spending

b.) government spending

c.) consumption spending

d.) transfer payment

Answer 1

1. True.

• GDP includes the value of all final goods and services produced in a country in a given period of time.
• It does not include the sale or purchase of intermediate and used goods.
• Hence when the business sells a used car to an individual, it is not counted in GDP.

2. True.

• Consumption expenditure refers to any part of income spent on the purchase of personal goods and services by the individual's for their personal use and benefits.
• Hence, Parents paying a childs tuition fees using their income comes under consumption expenditure.

3. Option C.

• The social security checks are the benefits provided to the disabled, old aged or other non working individuals in the form of subsidies in order to assist them in living.
• Social security checks are the transfer payments and are not included in GDP.
• But when these transfer payments are used up for personal consumption, they are counted as consumption expenditure under GDP.