Which COMPONENT(S) (if any) of U.S. GDP (consumption C, investment I, government spending G, and/or net...

Which COMPONENT(S) (if any) of U.S. GDP (consumption C, investment I, government spending G, and/or net exports NX) THIS YEAR would be affected and how (INCREASE or DECREASE) if:

(i) The government increases the monetary transfers to the poor.
    (j) A friend of yours buys some illegal drugs.
    (k) Taylor Swift releases a new single (assume nobody has bought it yet).
    (l) You buy a new car that you use to drive to college.

Expert Solution

(i) G increases

Monetary transfers will increase the transfer payment component of government spending. But note that, since nothing of value is received in return, a unilateral transfer payment will not be included in GDP.

(j) Nothing is changed

Purchase of illegal goods is under the shadow economy which is excluded from GDP.

(k) Nothing is changed

Since GDP measures only market value of goods and services produced, GDP will not include any event that has no monetary value associated with it.

(l) C increases

Purchase of new car for personal use falls under Personal Consumption Expenditure (Durable goods).

Rahul Sunny answered 2 years ago

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