Remaining Time: 1 hour, 28 minutes, 57 seconds. QUESTION 20 Which component of the GDP does the following transaction belong to? A family buys a Dachshund from a local pet store. A. Consumption B. Investment C. Government Expenditures D. Net Exports
The Correct Answer and Explanation is:
The correct answer is A. Consumption.
When a family purchases a Dachshund from a local pet store, the transaction falls under Consumption in the Gross Domestic Product (GDP) calculation. Here’s an explanation:
Gross Domestic Product (GDP) measures the total market value of all final goods and services produced within a country in a specific time period. It can be broken down into four components:
- Consumption (C): This refers to household spending on goods and services. It is the largest component of GDP in many economies. It includes expenditures on durable goods (like cars, appliances), non-durable goods (like food, clothing), and services (such as healthcare, education, and entertainment). The purchase of a pet like a Dachshund is classified as a consumption expenditure because it is a good purchased by a household for personal use.
- Investment (I): This component represents spending on business capital, residential construction, and changes in inventories. For example, businesses purchasing machinery or building new factories would be considered investments. Since buying a pet does not contribute to the creation of capital goods or future production, it is not classified as investment.
- Government Expenditures (G): This refers to government spending on goods and services. It includes military spending, infrastructure, public education, etc. Government spending does not include transfer payments like welfare or social security. The purchase of a pet does not involve government spending, so it is not classified here.
- Net Exports (NX): This is the difference between a country’s exports and imports. If a country imports more than it exports, it has a trade deficit. Since the Dachshund is purchased from a local store, the transaction does not involve exports or imports and therefore does not belong to net exports.
Thus, the purchase of a dog is considered a consumption expenditure, as it is a final good bought by a household for personal enjoyment.
