The U.S. government pays an economist at the U.S. Department of Commerce $50,000 in salary in 2006. The economist then retires. In 2007, the government pays him $30,000 in retirement benefits. Which of the following is correct? a. The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government purchases. b. The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government transfer payments. c. The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is allocated to previous years' GDP according to the amount of work performed by the economist each year. d. The 2006 payment is included in 2006 GDP as government purchases, but the 2007 payment is not included in 2007 GDP.

Answer: The correct answer is b )

. The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government transfer payments.

The reason behind this is that in 2006, the economist was actively working and providing services for the government. Thus, his salary is considered a government purchase of services, which is a part of the government consumption expenditures component of GDP.

On the other hand, in 2007, when the economist is retired, the payments he receives are not in exchange for current services rendered. They are retirement benefits, which are considered transfer payments. When the government makes transfer payments, it is not purchasing goods or services but is transferring income from one group (taxpayers) to another group (in this case, a retiree). Transfer payments are not included in the calculation of GDP since they do not reflect the economy's production of new goods and services in that year.