CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Which one should be counted toward GDP?

A. A Vietnam veteran receives veteran's payments from the federal government.
B. Your uncle gives you $1,000 to pay for your college expenses.
C. When a wholesale distributor sells steak to a restaurant, the restaurant owner pays $400 to the distributor.
Correct Answer: None of these payments should be counted toward GDP.

A: Income transfers are excluded from GDP since they don't involve production. The veteran is not producing any goods in return for the money (although he served in the war).

B: Income transfers are excluded from GDP since they don't involve production. Your uncle will have less wealth and you have more; the net effect is zero - the transaction adds nothing to current production.

C:The steak is still an intermediate good. Only the final purchase price paid by the patron of the restaurant for the steak dinner should be counted.

User Contributed Comments 8

User Comment
geofin "Two distinct, but closely related, measurement methods can be used to calculate GDP based on expenditures: value of final output and sum of value added...[example]... Thus, the contribution to GDP can be measured as either the final sale price or the sum of the value added at each stage."

CFA Institute. Level I Volume 2 Economics, 7th Edition. Pearson Learning Solutions. page 217

So, C is also correct!
dmfz I also answered C
Bududeen You are right to some extent... But value added should only be taken into consideration when we have final goods and services.... The steak above is still intermediate
ankurwa10 I do not agree that option C is correct. It is intermediate goods, unless customer pays for raw steak, just the way it was delivered to the restaurant.
sahinakos So what's the difference between the answer C here and the previous Q where some parts of the inventory was not sold yet - the answer there suggested that we should count the whole inventory at potential sales price into the GDP whereas here the inventory wouldn't count towards the GDP.. Can someone explain the difference please?
maryprz14 "Government services and Houshold productions are estimated and included in GDP." FROM THE TEXT.
So why a money given to veteran is not included????? Isn't it part of the government services?
maryprz14 Maybe it's same as Social Security and Welfare payments?!
AGAIN TAKEN FROM THE TEXT.
forry9er Going back to a previous question - IF they had mentioned the Steak was on sale for $25/lb to the customer, then we would include it in GDP? Hoping to help clarify - thanks!
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