GDP Items Excluded from GDP 2 — Questions and Answers
Question 1: Why are Social Security payments excluded from US GDP?
- They are transfer payments with no new production (Correct answer)
- They are too small to measure accurately
- They are only paid to retirees
- They are funded by foreign investors
Correct answer: They are transfer payments with no new production
Social Security payments are transfer payments—money redistributed from taxpayers to recipients—and represent no new goods or services produced.
Question 2: A homeowner sells a house built in 1985 for $400,000 in 2025. How much of this transaction counts toward 2025 GDP?
- $0, since the house was already counted in 1985 GDP (Correct answer)
- $400,000, the full sale price
- Only the price appreciation since 1985
- Only the real estate agent's commission
Correct answer: $0, since the house was already counted in 1985 GDP
The house was counted in GDP when it was originally built; resales of existing homes do not represent new production and are excluded.
Question 3: Which of the following best explains why purchasing a used car is excluded from GDP?
- No new value is created; it is merely a transfer of an existing asset (Correct answer)
- Used cars depreciate too quickly to measure
- The transaction occurs in the informal economy
- Only new vehicle imports count toward GDP
Correct answer: No new value is created; it is merely a transfer of an existing asset
Buying a used car transfers ownership of an already-counted asset and adds no new production to the economy.
Question 4: Welfare benefits paid by the federal government are excluded from GDP primarily because they:
- Do not correspond to any current productive activity (Correct answer)
- Are paid in non-cash form only
- Are too difficult to track statistically
- Represent spending by state governments, not federal
Correct answer: Do not correspond to any current productive activity
Welfare payments are transfer payments—income redistributed without an exchange of goods or services—so they add nothing to measured output.
Question 5: An investor buys $50,000 worth of corporate bonds. This transaction is excluded from GDP because:
- It is a financial transaction involving existing securities, not new production (Correct answer)
- Bonds are not considered economic assets
- Only stock purchases count toward GDP
- Corporate bonds are issued abroad
Correct answer: It is a financial transaction involving existing securities, not new production
Buying bonds is a financial asset transfer; it does not represent production of new goods or services.
Question 6: Which scenario involves an item correctly excluded from GDP?
- A grandmother gives her grandchild $500 as a birthday gift (Correct answer)
- A restaurant buys $500 of fresh vegetables from a farm
- A city hires a contractor to repave a road for $500,000
- A software firm sells a new app for $500
Correct answer: A grandmother gives her grandchild $500 as a birthday gift
A private cash gift is a private transfer payment with no associated production of goods or services, so it is excluded from GDP.
Question 7: Intermediate goods are excluded from GDP to avoid:
- Double-counting the value already embedded in final goods (Correct answer)
- Overestimating exports
- Including government spending twice
- Measuring inflation inaccurately
Correct answer: Double-counting the value already embedded in final goods
Intermediate goods are inputs used to make final goods; including them would count their value twice since their worth is already reflected in the final product's price.
GDP Items Excluded from GDP 2
Why are Social Security payments excluded from US GDP?