Select Any One Of the Following Options: Jack was receiving an Unemployment benefit of INR 12k per month. Now, he manages to get a Government Job and is receiving INR 12k per month as salary. What would happen to the GDP? Moreover, which component of the GDP would rise?The GDP would rise with rise in consumption expenditureNo impact on the GDP.GDP would fall.The GDP would rise with rise in Govt Expenditure on Goods and Services.
Question
Select Any One Of the Following Options: Jack was receiving an Unemployment benefit of INR 12k per month. Now, he manages to get a Government Job and is receiving INR 12k per month as salary. What would happen to the GDP? Moreover, which component of the GDP would rise?The GDP would rise with rise in consumption expenditureNo impact on the GDP.GDP would fall.The GDP would rise with rise in Govt Expenditure on Goods and Services.
Solution
The GDP would rise with rise in Govt Expenditure on Goods and Services.
Here's why:
Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. It functions as a comprehensive scorecard of a given country’s economic health.
When Jack was unemployed, he was receiving an unemployment benefit of INR 12k per month. This is a transfer payment from the government, which is not counted in the GDP as it does not involve the production of goods and services.
Now, when Jack gets a government job and earns INR 12k per month, this amount is considered as government expenditure, which is a component of GDP. Government expenditure includes all government consumption, investment, and transfer payments. In this case, Jack's salary can be considered as government consumption expenditure as it is the amount spent by the government on the final goods and services it uses to provide public services.
So, when Jack moves from being unemployed to being employed by the government, the government's consumption expenditure increases, which in turn increases the GDP. Therefore, the component of the GDP that would rise in this case is the government expenditure on goods and services.
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