GDP Components of GDP 3

Question 1

A homeowner decides to paint their own house rather than hire a contractor. What happens to GDP?

Accepted Answer

GDP is unaffected because no market transaction occurred

Answer

GDP only counts market transactions; do-it-yourself work that is never sold in the market is excluded from GDP calculations.

Question 2

Which component of GDP would capture a family buying a newly constructed home?

Accepted Answer

Gross Private Domestic Investment (I)

Answer

New residential construction is classified as residential investment, a sub-category of Gross Private Domestic Investment.

Question 3

If businesses accumulate more unsold inventory than planned, how does this affect GDP?

Accepted Answer

It increases Investment (I) through unplanned inventory investment

Answer

Unsold inventory is counted as unplanned inventory investment within the Investment component, ensuring production is captured even before a sale occurs.

Question 4

A foreign tourist spends $3,000 at U.S. hotels and restaurants. Which GDP component captures this spending?

Accepted Answer

Net Exports (NX) as an export

Answer

Foreign spending on domestic goods and services is treated as an export, boosting the Net Exports component of U.S. GDP.

Question 5

Which of the following is counted in the Consumption (C) component of GDP?

Accepted Answer

Monthly rent paid to a landlord

Answer

Rent payments are a service purchase by households and fall under Consumption, specifically the services subcategory.

GDP - Gross Domestic Product Practice Test

GDP - Gross Domestic Product Practice Test

GDP Components of GDP 3