Question

Which of the following is included in the consumption component

of GDP? Select one:
a. CPP/QPP payments
b. purchases of foreign goods and services
c. goods produced but not sold during the reference p

Answer 1

The consumption component of GDP includes the purchase of goods and services such as the cost of hospital stays and new car sales, but not the rise in life expectancy, unpaid child care by a relative, used car sales, the variety of supermarket goods, or the raw materials used in goods sold.

Step-by-step explanation:

GDP and Its Components

The consumption component of the Gross Domestic Product (GDP) represents the total value of all goods and services that households have consumed during a given period. This typically includes the purchase of durable goods (like cars and appliances), nondurable goods (like food and clothing), and services (like healthcare, legal services, and education).

Now, let's look at the items in the list and determine which ones would be included in the GDP and which ones would not:

• 
  
• The cost of hospital stays - Included, as it is a service consumed by households.
• 
  
• Rise in life expectancy over time - Not included, as it is not a product or service that can be bought or sold.
• 
  
• Child care provided by a licensed day care center - Included, as it is a service consumed by households.
• 
  
• Child care provided by a grandmother - Not included, since it is not typically a paid service and occurs outside the market.
• 
  
• A used car sale - Not included, as it does not represent production of new goods, but a transfer of ownership.
• 
  
• A new car sale - Included, as it represents a purchase of a durable good that is part of the current year's production.
• 
  
• The greater variety of cheese available in supermarkets - Not included, as variety itself does not have a direct monetary value.
• 
  
• The iron that goes into the steel that goes into a refrigerator bought by a consumer - Not included directly, as it is the refrigerator, an end product, that would be counted when bought by the consumer.

The key to understanding what is included in the GDP is recognizing that only goods and services that involve a market transaction in the current year are counted. This means that non-market activities, second-hand sales, and intermediate goods (unless part of final goods or services) are not part of GDP calculations.