Consider the following three items of spending by the government: (i)the federal government pays a $500 unemployment benefit to an unemployed person; (ii)the federal government makes a $2,000 salary payment to a Navy lieutenant; (iii)the city of Bozeman,Montana makes a $10,000 payment to ABC Lighting Company for street lights in Bozeman.Which of these payments contributes directly to government purchases in the national income accounts?

Question

Quizplus · Accepted Answer

Government purchases in national income accounts include spending on goods and services. Payments to individuals, like unemployment benefits, are transfer payments and do not count. Thus, the salary payment to a Navy lieutenant and the payment for street lights are government purchases.

Consider the Following Three Items of Spending by the Government