A bundle of goods that costs 1 in the U.S. is worth 5 units in ...

[WWatsford]

A bundle of goods that costs 1 in the U.S. is worth 5 units in Country A's currency. If Country A's GDP in its own currency is 5,000,000 units, Country A's GDP in purchasing power parity-adjusted dollars is ________.
 
  A) 1,000,000 B) 50,000,000 C) 2,500,000 D) 3,000,000

Question 2

Define transfer payments and explain why they are not included in the government purchases section of the GDP accounts.
 
  What will be an ideal response?

[C.mcnichol98]

Answer to Question 1

A

Answer to Question 2

Transfer payments are funds paid to individuals that are not associated with the production of goods and services. They are not included in the government purchases section of the GDP accounts because nothing is being produced in return for the payment. However they do show up in the accounts indirectly when they are spent (and saved) by their recipients; thus they do appear in the consumption (and saving) section of the accounts.