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. True, false or uncertain. please explain.

Answer 1

Statement is false, because GDP excludes nonproduction transactions: public transfer payments, such as Social Security, privatetransfer payments, such as gifts, and financial market transactions, since securities represent either ownership, such as with stocks, or they represent loans, such as bonds. That’s why operations that should be added to the measurement of GDP are: $2B firm’s pay for the bridge and $1B that workers have got.