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2. Government purchases (G) does not include all of government spending: What is not included? 3. Consumption spending (C)
In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologn
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Answer-1) Government purchases refers to the expenditures on products and services by federal, state, and local governments. However the combined total of government spending excludes the transfer payments and interest on the debt. Because the transfer payments are expenditures which do not involve purchases, such as farm subsidies and social security payments thus are excluded. In economics the transfer payment are termed to be non-exhaustive as these do not directly absorb any resource and create the output. The transfer payments are money reallocation from one party to another instead of the expenditure on newly produced products and services. Similarly interest on the debt is not connected to production thus excluded from government spending

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