Question 49

Consumption is affected when a parent pays for a child's college education.

When a parent pays for a child's college education, it directly influences the consumption component of GDP. This is because the payment for educational services is considered a personal expenditure on goods and services.

A) Net exports

Net exports refer to the difference between a country's exports and imports. This component is not influenced by personal payments for education, as it pertains to international trade rather than domestic consumption patterns.

B) Investment

Investment in GDP typically includes business expenditures on capital goods and residential construction. While education can be viewed as an investment in human capital, the direct payment for a child's college education is classified under consumption rather than investment.

C) Consumption

Consumption encompasses all private expenditures by households and non-profit institutions, including payments for education. Therefore, when a parent pays for college, it is categorized as a consumption expenditure, directly impacting GDP.

D) Government purchases

Government purchases are expenditures made by the government on goods and services. Parental payments for a child's education do not fall under this category, as they are private expenditures rather than government spending.

Conclusion

The correct answer is C, as the act of paying for a child's college education is a clear example of consumption expenditure within the GDP framework. Other options, such as net exports, investment, and government purchases, do not apply to this scenario, highlighting the specific nature of how this expenditure affects the overall economy.