Expenditure Method of GDP Calculation

The expenditure method is one of the three approaches used to calculate the Gross Domestic Product (GDP), which is a measure of the total value of goods and services produced in an economy over a given period. This method calculates GDP by summing up the various components of expenditure within the economy.

The components included in the expenditure method of GDP calculation are as follows:

1. Private Consumption: Private consumption, also known as personal consumption expenditure, represents the total value of goods and services purchased by households for their own use. It includes expenditures on durable goods (such as cars and appliances), non-durable goods (such as food and clothing), and services (such as healthcare and education).

2. Government Consumption: Government consumption refers to the value of goods and services purchased by the government for public use. This includes expenditures on public infrastructure, defense, healthcare, education, and other government services.

3. Net Exports: Net exports represent the difference between a country's exports and imports. It is calculated by subtracting the value of imports from the value of exports. If the value of exports exceeds imports, it results in a trade surplus and contributes positively to GDP. Conversely, if the value of imports exceeds exports, it leads to a trade deficit and negatively impacts GDP.

4. Investments: Investments refer to the spending on capital goods, such as machinery, equipment, and buildings, for the purpose of increasing production capacity or improving technology. It includes both private investment by businesses and public investment by the government. Investment expenditure is considered a key driver of economic growth.

5. Firm Profits: Firm profits, also known as corporate profits, represent the earnings of businesses after deducting costs and taxes. While firm profits are not directly included in the expenditure method of GDP calculation, they indirectly contribute to GDP through investment and consumption expenditure.

Therefore, the correct answer is option C, which includes all the components mentioned above (1, 2, 3, and 4). Firm profits are not explicitly included in the expenditure method, but they indirectly contribute to GDP through investment and consumption expenditure.