A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP

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BlackTom AI · Accepted Answer

Consider the basic idea of GDP by the expenditure approach: GDP reflects the value of all final goods and services produced domestically in a given period, regardless of who buys them, minus imports.

Option 1: 'increases by $220.' The $220 grocery purchase is domestic consumption of goods produced in the U.S., so it contributes to U.S. GDP. The shoes ($40, imported from Thailand) and the television ($1240, imported from Korea) are not domestically produced, so they do not add to U.S. GDP. Therefore, GDP rises by 220 from the domestic groceries.

Option 2: 'increases by $1500.' The total $1500 is not all added to GDP because part of it funds imports (the shoes and the TV). GDP only counts domestically produced output, not the entire expenditure on goods from abroad.

Option 3: 'increases by $40.' This would ignore the fact that the $1240 TV is an import and the groceries are domestic; counting only $40 would understate the domestic production since the groceries are produced locally and contribute to GDP.

Option 4: 'increases by $280.' This seems to sum 40 and 240 or similar, but the $40 shoes are an import and do not add to GDP, while the $220 groceries do. The combined total of 280 misattributes the domestic contribution of the grocery spending and incorrectly includes the imported shoes.

Putting it together, the only amount that reflects domestic production in this scenario is the $220 spent on groceries domestically, so that is the correct conceptual outcome for U.S. GDP.

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP

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