Question

For each of the following scenarios, classify the type of spending (C,I,G,Xn), describe its impact on gross domestic product (increase, decrease, not impacted), and explain your answer.

a )A new airplane purchased by United Parcel Service

b) The tuition you pay during your first year of college

C) The social security check your grandmother receives

d) A new purchase of 50,000 shares of Time/Warner stock

e) A new pair of tennis shoes made in China and purchased by an American shoe store

Answer 1

(a) New airplane purchased by UPS - I (since UPS has bought the airplane as its fixed business investment)

GDP will increase.

(b) Tuition paid - C (this is personal consumption expenditure for services)

GDP will increase.

(c) Social security check - None (transfer payment is not included as government spending)

GDP will not be impacted.

(d) New purchase of stock - None (purchase of stocks/bonds is not included in component of GDP)

GDP will not be impacted.

(e) New shoes made in China and purchased by American store - Xn (since this is an import, included in net exports)

GDP will decrease.