Question

General Herbert "Hawk" Carlisle ACC Commander is reviewing the 2016 budget for the USAF. One of the line numbers in the budget are $56.3 million in costs allocated to the Judge Advocate General's Corps (or JAG for short)—the legal branch of the US military. Of these $56.3 million, the bulk, $42 million are payments to the officer corps payments. Another large component—$7.2 million—are payment to plaintiffs, former USAF personal that have won cases against the USAF for injury and/or discrimination. Based on these data, we can conclude which of the following to be true?

Question 29 options: The entirety of $56.3 million paid to the Jag Corp must be counted in US GDP, since these expenditures are a part of government expenditures, which is a component of GDP.

Only $14.3 million [=$56.3 million - $42 million] should count towards GDP, since incomes and salaries are not expenditures, and are therefore not counted as part of GDP.

The outlay of $7.2 million to plaintiffs in litigation cases are not included in GDP, since these are a transfer payment.

None of the above are true.

Answer 1

Answer : The answer is option A.

In expenditure method, GDP = Consumption expenditure + Government expenditure + Investment + Net export.

Government expenditure includes the government expenditure on final goods and services, road construction, public building maintenance, salaries and military expenses. But it does not include transfer payment. Here $56.3 million is the expenditure of military expenses. Military expenditure is a part of government expenditure and government expenditure is a component of GDP. Based on given information there exists no transfer payment. So, whole $56.3 million expenditure will be included in GDP. Therefore, option A is correct.