Which of the following by definition directly adds to a country's GDP (Gross Domestic Product)?

• A. A consumer purchases a new car manufactured domestically.
• B. A citizen receives a social security payment from the government.
• C. A company pays interest on a loan to a foreign bank.
• D. An individual buys shares of stock in a domestic company.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what GDP measures. GDP (Gross Domestic Product) is the total market value of all final goods and services produced within a country during a specific period. It includes only new production and excludes transfer payments or financial transactions that do not reflect current production.
2. Step 2: Analyze each option to see if it involves the production of a new good or service within the country. For example, purchasing a new car manufactured domestically represents the purchase of a newly produced good, which directly contributes to GDP.
3. Step 3: Recognize that transfer payments, such as social security payments, are not payments for goods or services produced, so they do not add to GDP. They are simply redistributions of income.
4. Step 4: Understand that interest payments to foreign banks are financial transactions and do not represent production of goods or services within the country, so they do not add to GDP.
5. Step 5: Buying shares of stock is a financial investment and does not represent production of new goods or services, so it does not directly add to GDP.