NOTES YOU CAN USE FOR ANSWEING THE QUESTIONS:

GDP = Consumer Spending + Investment Spending + Government Spending + Net Exports (Exports (X) - Imports (M))

C if the item is counted as Consumption (households consume)

I if the item is counted as Investment (businesses invest, consumers only invest in new homes)

G if the item is counted as Government (Government purchases goods and services like consumers)

(X-M) if the item is counted as Net Export (We subtract imports from our exports)

If the item is not counted as part of GDP (include the reason #)

• Remember, GDP DOES NOT INCLUDE:

1. Second hand sales (used products)
2. [The salesman's commission does count.]
3. Public/Private transfer payments (welfare/social security/unemployment compensation)
4. Purely financial transactions [the sale of stocks, bonds, CDs - but the broker's fees do count]
5. Intermediate Goods (this avoids double counting)
6. U.S. Corporations producing overseas
7. Non-market transactions (household or volunteer work)
8. Illegal business activity [prostitution, murder-for-hire, illegal drugs sales, etc.]
9. Unreported business activity [working "under the table" or "off the books"]

ANSWER CHOICES:

5

1

8

3

X-M

C

1

4

7

G

QUESTIONS:

1. You spend $10 to buy a movie.

2. You pay $100,000 for a new house.

3. You buy a bottle of imported French wine.

4. You purchase a house built 3 years ago

5. You pay $175 for a tailored suit.

6. The government increases its military expenditures by $1 billion.

7. The government makes a $90 Social Security payment to a retired person.

8. You purchase General Motors stock for $1000.

9. At the end of the year, a flour milling firm finds that it has excess inventories of grain and flour.

10. Congress appropriates money to build a bridge in Alaska.

11. Russians buy US wheat.

12. A housewife does a lot of work caring for her husband and two children.

13. General Motors buys new car-making robots. (technology)

14. You pay $600 a month to rent a house. (service)

15. The Department of Defense pays salaries of teachers in schools on military bases.

16. Apple Computer Company builds a new computer factory.

17. R.J. Reynolds Company buys stock in Nabisco Brands cookies.

18. You buy a new Toyota built in a plant in Kentucky.

19. The Department of Education pays for supplies for pre-kindergarten Head Start programs.

20. You pay tuition to attend an economics course.