Which of the following is NOT included in U.S. GDP as measured by the expenditure approach?

• A. Government spending on public school teacher salaries
• B. The purchase of shares of stock on the secondary market
• C. A household’s purchase of a newly built home
• D. A firm’s purchase of new machinery and equipment

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the expenditure approach to GDP, which calculates GDP as the sum of Consumption (C), Investment (I), Government Spending (G), and Net Exports (NX). The formula is: \[ GDP = C + I + G + (X - M) \] where \(X\) is exports and \(M\) is imports.
2. Step 2: Identify which types of spending fall into each category. For example, government spending (G) includes government expenditures on goods and services such as public school teacher salaries.
3. Step 3: Recognize that investment (I) includes business spending on new machinery and equipment, as well as residential investment like the purchase of newly built homes.
4. Step 4: Understand that the purchase of shares of stock on the secondary market is a financial transaction and does not represent production of new goods or services, so it is excluded from GDP.
5. Step 5: Conclude that among the options, the purchase of shares of stock on the secondary market is NOT included in GDP because it does not reflect current production or expenditure on goods and services.