Question

The U.S. government pays an economist at the U.S. Department of Commerce $100,000 in salary in 2013. The economist then retires. In 2014, the government pays him $60,000 in Social Security benefits. Which of the following is correct? a. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is included in 2014 GDP as government purchases. b. The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP. c. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is included in 2014 GDP as government transfer payments. d. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is allocated to previous years' GDP according to the amount of work performed by the economist each year.

Answer 1

b. The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP.

Step-by-step explanation:

The $100,000 the economist received in 2013 is payment for his service to the government, therefore it is included in 2013 GDP as government purchases.

The $60,000 he received in 2014 is not goods or services made in the economy, but only an allocation of money. So it (and social transfer payment in general) is not included in GDP.