Question

Which of the following would increase the government purchases component of U.S. GDP?

A. The U.S. federal government pays $3 billion in pensions to government workers. B. The U.S. federal government pays $3 billion in interest on the national debt. C. The U.S. federal government pays $3 billion in salaries to soldiers in the military. D. The U.S. federal government pays $3 billion in interest to foreign holders of U.S. government bonds.

Answer 1

Statement C

The U.S. federal government pays $3 billion in salaries to soldiers in the military.

Step-by-step explanation:

The purchase component is a part of business investment while calculating the effect on GDP.

Under this all the cost incurred by the companies to produce the goods are included in such costs.

In the given instance, only salary is paid at the time of production, and thus, this will form part of purchase component of GDP.

Amount paid as salary to soldiers in the military is the correct option, as it will increase the purchase component.