Practice Test GeeksGDP - Gross Domestic Product Practice Test
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Components of GDP Flashcards

7 cards from real GDP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Components of GDP flashcards as text

  1. Which component of GDP includes spending by state and local governments but excludes transfer payments like Social Security?

    Answer: Government Expenditure (G)

    Government Expenditure (G) covers purchases of goods and services by all levels of government but excludes transfer payments since those are not purchases of new output.

  2. A U.S. company builds a new factory in Mexico. How does this affect U.S. GDP components?

    Answer: It does not directly affect U.S. GDP

    GDP measures output produced within a country's borders, so a factory built in Mexico does not count in U.S. GDP regardless of the company's nationality.

  3. In the expenditure approach to GDP, which formula correctly represents all four components?

    Answer: GDP = C + I + G + NX

    The standard expenditure formula is GDP = C + I + G + NX, where NX can be positive or negative depending on trade balance.

  4. Which of the following best represents 'Gross Private Domestic Investment' in GDP calculations?

    Answer: Business fixed investment, residential investment, and changes in inventories

    Gross Private Domestic Investment includes business fixed investment (equipment/structures), residential investment, and inventory changes.

  5. If U.S. exports are $500 billion and imports are $600 billion, what is the Net Exports (NX) component?

    Answer: -$100 billion

    Net Exports = Exports − Imports = $500B − $600B = −$100 billion, indicating a trade deficit that reduces GDP.

  6. Which scenario would INCREASE the Investment (I) component of GDP?

    Answer: A corporation purchases new machinery for its factory

    Purchasing new machinery is business fixed investment, which directly increases the Investment component of GDP.

  7. Why are transfer payments like unemployment benefits excluded from the Government (G) component of GDP?

    Answer: They represent money redistribution, not new production of goods or services

    Transfer payments redistribute income without corresponding production of new goods or services, so they are not counted as government spending in GDP.