An Iowan receives a Social Security check for 500 which he u

An Iowan receives a Social Security check for $500, which he uses to purchase a $480 television made in Japan by a Japanese firm and a $20 dinner at a local restaurant. As a result, U.S. GDP

a. does not change.
b. increases by $20.

c. increases by $520.

d. increases by $1000.

Solution

(b) GDP increases by $20.

Social security payment is a unilateral transfer and so, not counted in GDP. Plus, purchase of a Japanese TV set will not be included in US GDP.