Question

The U.S. government pays an economist at the U.S. Department of Commerce $50,000 in salary in 2006. The economist then retires. In 2007, the government pays him $30,000 in retirement benefits. Which of the following is correct?
a.
The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government purchases.

b.
The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government transfer payments.

c.
The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is allocated to previous years' GDP according to the amount of work performed by the economist each year.

d.
The 2006 payment is included in 2006 GDP as government purchases, but the 2007 payment is not included in 2007 GDP.

Answer 1

Answer:

d.  

The 2006 payment is included in 2006 GDP as government purchases, but the 2007 payment is not included in 2007 GDP.

Explanation:

The 2006 salary was of that year's service provided by the Economist. So it is included in 2006 GDP.

The retirement benefits in 2007 is a transfer payment by government where benefits are paid without any service to be received in return. Transfer payments are not included in GDP