Question

If total government spending in a given year was $3.7 trillion, then all of this spending counted directly in GDP as part of the government spending (G) category.

a. True
b. False

Answer 1

The statement is false because only government spending on goods and services is included in GDP, while transfer payments such as Social Security are not.

Step-by-step explanation:

The question posed is whether all government spending is included as part of the government spending (G) category in the calculation of Gross Domestic Product (GDP). This statement is false. In the context of GDP, only those government expenditures that involve the purchase of goods and services are counted, such as federal government spending on military equipment or state government outlays for infrastructure projects like highways. Significant portions of government spending consist of transfers, like unemployment benefits and Social Security payments, which are excluded from GDP calculations because they do not result in the production of new goods and services.