Question

An American soldier stationed in California receives a paycheck from the federal government for $500, which she uses to purchase a $300 stereo made in Korea by a Korean firm and $200 worth of groceries produced in California. As a result, U.S. GDP increases by: a. $200. b. $500. c. $700. d. $1000.

Answer 1

Answer: c. $700

Step-by-step explanation:

Two key components of the GDP calculation are represented here.

Government Spending and Consumption.

In paying the soldier $500 the GDP has increased by $500 because this is Government Spending.

By then using $200 out of that money to to buy groceries produced in the USA she adds $200 to the GDP because that will then count as CONSUMPTION.

In total then $700 has been added to the GDP.