Identify which of the following items would be included in U.S. GDP and which would not.?

Question

a. The wages of a field worker in Lousiana.

b. Welfare Checks.

c. Food stamp payments.

d. The output of a foreign-owned farm in Kansas.

e. The salary of an American consultant hired by a British firm to go to and analyze their European operations.

Answer 1

Remember what GDP (Y) is.

Y = C + I + G + X (You can also just add up all incomes)

C = consumption

I = Investment

G = Government Expenditures

X = net exports

a. the wages of the field worker are comprised by what they consume (part of C), what they save (gets put into I investment), and their taxes are part of G so the wages are part of GDP

b. Welfare checks are transfer payments. They are taken from your taxes and then redistributed by the government to individuals. A transfer payment is not part of GDP, imagine that you are giving 10 dollars to uncle Sam then he goes around and gives it to Sally. Nothing really changed money just changed hands.

c. Food stamps are also transfer payments

d. A foreign owned farm is income generated domestically, so it can be considered part of GDP. The fact that it is foreign owned is irrelevant.

e. Because the consultant is working in Europe while this is a part of Gross National Product (income earned by US citizens or firms) it is not produced domestically and therefore cannot be considered part of GDP.

Answer 2

abc