Which of the following is considered a component of government purchases in the calculation of GDP?

• A. Private investment in infrastructure
• B. Interest payments on government debt
• C. Transfer payments such as Social Security
• D. Spending on public education and defense

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the components of GDP, which include Consumption (C), Investment (I), Government Purchases (G), and Net Exports (NX). Government Purchases (G) specifically refer to government spending on goods and services that directly absorb resources and contribute to current production.
2. Step 2: Identify what counts as government purchases. These include spending on public services such as defense, public education, infrastructure projects directly paid for by the government, and salaries of government employees.
3. Step 3: Recognize that transfer payments (like Social Security) and interest payments on government debt are not included in government purchases because they are redistributions of income, not payments for goods or services.
4. Step 4: Note that private investment in infrastructure is part of private investment (I), not government purchases, even if it relates to infrastructure.
5. Step 5: Conclude that spending on public education and defense is a component of government purchases in GDP because it represents government expenditure on goods and services that contribute to current economic output.