An American soldier stationed in California receives a paycheck from the federal government for $500,which she uses to purchase a $300 stereo made in Korea by a Korean firm and $200 worth of groceries produced in California.As a result,U.S.GDP increases by

Question

Quizplus · Accepted Answer

When the soldier purchases the stereo made in Korea, it does not contribute to the US GDP as it is a product of a foreign firm. However, when she purchases $200 worth of groceries produced in California, it adds to the US GDP as it is a domestically produced product. Therefore, the increase in the GDP is $200 for the groceries purchased in California. In addition, the soldier's paycheck of $500 also adds to the US GDP as it is a payment for her contribution to the US economy. Thus, the total increase in GDP is $700 ($500 from the paycheck and $200 from the groceries purchased in California).

An American Soldier Stationed in California Receives a Paycheck from the Federal