GDP Components of GDP 2

Question 1

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

Accepted Answer

Government Expenditure (G)

Answer

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.

Question 2

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

Accepted Answer

It does not directly affect U.S. GDP

Answer

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.

Question 3

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

Accepted Answer

GDP = C + I + G + NX

Answer

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

Question 4

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

Accepted Answer

Business fixed investment, residential investment, and changes in inventories

Answer

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

Question 5

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

Accepted Answer

-$100 billion

Answer

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

GDP - Gross Domestic Product Practice Test

GDP - Gross Domestic Product Practice Test

GDP Components of GDP 2