Question

Suppose a government collects $10B in income taxes, pays a firm $2B to build a bridge, pays its own workers $1B, transfers $4B to poor citizens and pays $3B in interest payments to government bondholders. This government’s operations add $10B to the measurement of GDP.
Explain in detail: True False or Uncertain

Answer 1

Suppose a government collects $10B in income taxes, pays a firm $2B to build a bridge, pays its own workers $1B, transfers $4B to poor citizens and pays $3B in interest payments to government bondholders. According to income approach, the change in GDP is $10B (income taxes). And according to expenditure approach, the change in GDP is $10B too (2+1+4+3 = $10B). So, this government’s operations add $10B to the measurement of GDP. That's why the statement is True.