GDP Components of GDP 4

Question 1

Which component of GDP tends to be the most volatile over the business cycle?

Accepted Answer

Gross Private Domestic Investment (I)

Answer

Investment is the most volatile GDP component because businesses rapidly cut capital spending during recessions and expand it during booms.

Question 2

In the U.S., approximately what share of GDP does personal consumption expenditure (C) typically represent?

Accepted Answer

About 70%

Answer

Personal consumption expenditure historically accounts for roughly 68–70% of U.S. GDP, making it the largest single component.

Question 3

A pharmaceutical company spends $200 million on R&D that leads to a new drug. Since 2013, how has the BEA treated this spending in GDP?

Accepted Answer

It is counted in Investment (I) as intellectual property investment

Answer

Since 2013, the BEA reclassified R&D spending as intellectual property investment, adding it to the Gross Private Domestic Investment component.

Question 4

A U.S. automaker imports $1 billion in car parts from Germany and sells finished cars domestically. How does this affect GDP components?

Accepted Answer

Consumption rises but Net Exports fall, with no net change from the imported parts

Answer

When finished cars are sold domestically, Consumption rises; but the imported parts increase Imports, reducing NX by an equivalent amount, netting out the foreign content.

Question 5

Which of the following expenditures is NOT included in GDP?

Accepted Answer

An investor buying shares of Apple stock on the NYSE

Answer

Purchasing existing financial assets like stocks is not production of new goods or services and therefore is not counted in GDP.

GDP - Gross Domestic Product Practice Test

GDP - Gross Domestic Product Practice Test

GDP Components of GDP 4