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Chapter 19: Problem 13

During an intcrvicw with a reportcr, formcr Microsoft CEO Stcvc Ballmer discussed the data compiled on the usafacts.org Web site. Ballmer asked if the reporter knew how many people the government employed and provided the answer: "Almost 24 million. Would you have guessed that?" a. Is local, state, and federal governments spending on salaries and benefits for these employees considered production as measured by GDP? Briefly explain. b. According to data on the usafacts.org site, in 2014 the federal government spent \(\$ 57.3\) billion on Social Security payments to retired and disabled people. Is this federal government spending considered production as measured by GDP? Briefly explain.

Short Answer

Expert verified
Yes, government spending on salaries and benefits is considered in GDP. However, the government spending on Social Security payments is not included in GDP calculations as it does not receive a good or service in return.

Step by step solution

01

Defining GDP

Gross Domestic Product (GDP) is the total monetary value of all finished goods and services produced within a country's borders in a specific time period. It serves as a comprehensive measure of a nation’s overall economic activity.
02

Part A: Salaries and Benefits

Yes, the salaries and benefits paid to local, state, and federal government employees are considered production as measured by GDP. When the government employs workers, it includes their wages and benefits in the compensation of employees component of GDP. This is because when the government pays its employees, it receives a service in return, which contributes to the overall economic production of the country.
03

Part B: Social Security Payments

Contrary to salaries and benefits, Social Security payments are not included in GDP calculations. The economic production as measured by GDP includes the value of goods and services produced by those who are employed. When the government provides Social Security payments, however, it does not receive a good or service in return, and thus, this federal government spending is considered a transfer payment and is not included in GDP calculations.

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Most popular questions from this chapter

In the circular flow of income, why must the value of total production in an economy equal the value of total income?

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