If the government builds a public park that is free to use what is correct regarding the construction expenditure?
Answer and explanation
Correct answer: It will be included in GDP as government final expenditure
GDP counts current production of final goods and services purchased by the government, not merely activities that charge users a fee. Building the park requires construction services and materials produced during the period, so the government’s purchase is recorded as government final expenditure. Free public access does not turn the construction into a transfer payment or remove it from GDP. A transfer is a payment without current production in return.
Frequently asked questions
What is the correct answer to this question?
It will be included in GDP as government final expenditure
Why is this the correct answer?
GDP counts current production of final goods and services purchased by the government, not merely activities that charge users a fee. Building the park requires construction services and materials produced during the period, so the government’s purchase is recorded as government final expenditure. Free public access does not turn the construction into a transfer payment or remove it from GDP. A transfer is a payment without current production in return.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
