Question

Consider the following three items of spending by the government:_____

(1) the federal government pays a $500 unemployment benefit to an unemployed person;
(2) the federal government makes a $2,000 salary payment to a Navy lieutenant;
(3) the city of Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street lights in
Bozeman. Which of these payments contributes directly to government purchases in the national income accounts?
a. only item (1)
b. only item (2)
c. only items (1) and (2)
d. only items (2) and (3)

Answer 1

D) only items (2) and (3)

Step-by-step explanation:

Unemployment benefit is a transfer payment, it does not generate any goods or services to the government, but it is a donation to the unemployed person or redistribution of income by the government, so it does not contribute anything to National Income Account.

Whilst salaries are paid to the employees in exchange of their skills utilized and service fee to ABC lighting is for productive services rendered by the business entity because they are paid for services or goods rendered or sold, or simply a productive activity being done.

So, both options 2 and 3 contribute directly into National Income Accounts because of their productive contribution to economy.