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While calculating the Gross Domestic Product (GDP) by expenditure method, which of the following factors are taken into account?
1. Final household consumption expenditure
2. Expenditure on intermediate goods
3. Final capital expenditure
4. Government expenditure on unemployment allowance
Select the correct answer using the code given below.
1. Final household consumption expenditure
2. Expenditure on intermediate goods
3. Final capital expenditure
4. Government expenditure on unemployment allowance
Select the correct answer using the code given below.
- a)1 and 4 only
- b)1, 3 and 4 only
- c)1 and 3 only
- d)2, 3 and 4 only
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
While calculating the Gross DomesticProduct (GDP) by expenditure metho...
- The expenditure method is a system for calculating gross domestic product (GDP) that combines consumption, investment, government spending, and net exports. It is the most common way to estimate GDP.
- In an economy, there are three main agencies, which buy goods and services. These are: Households, Firms, and the Government.
- It says everything that the private sector, including consumers and private firms, and government spend within the borders of a particular country, must add up to the total value of all finished goods and services produced over a certain period of time.
- This final expenditure is made up of the sum of 4 expenditure items, i.e GDP= C+I+G+X-M namely:
- Consumption (C): Personal Consumption made by households, the payment of which is paid by households directly to the firms which produced the goods and services desired by the households. Hence option 1 is correct.
- Investment Expenditure (I): Investment is an addition to the capital stock of an economy in a given time period. It includes capital expenditures by firms on assets, such as equipment, production facilities, and plants.
- It is to be noted that final investment includes investment on capital goods and not on intermediate goods. Hence option 2 is not correct and option 3 is correct.
- Government Expenditure (G): It represents expenditures by the government on defense and non- defense goods and services, such as weaponry, health care, and education.
- Government expenditure on pension schemes, scholarships, unemployment allowances etc. are not included in this as all of them come under transfer payments. Hence option 4 is not correct.
- Net Exports (X-IM): Expenditure on foreign-made products (Imports) are expenditure that escapes the system, and must be subtracted from total expenditures. In turn, goods produced by domestic firms which are demanded by foreign economies involve expenditure by other economies on our production (Exports), and are included in total expenditure. The combination of the two gives us Net Exports.
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While calculating the Gross DomesticProduct (GDP) by expenditure metho...
Factors considered while calculating GDP by expenditure method:
- Final household consumption expenditure: This includes the total expenditure by households on goods and services for final use, such as food, clothing, housing, and healthcare.
- Final capital expenditure: This refers to the total expenditure on capital goods like machinery, equipment, and infrastructure that are used for production purposes.
- Government expenditure on unemployment allowance: This includes the total amount spent by the government on providing unemployment benefits to individuals who are out of work.
Factors not considered:
- Expenditure on intermediate goods: Intermediate goods are not considered in GDP calculations by the expenditure method as they are already accounted for in the final goods and services produced.
Therefore, the correct answer is option 'C' - 1 and 3 only, as intermediate goods (factor 2) are not included in the calculation of GDP by expenditure method.
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While calculating the Gross DomesticProduct (GDP) by expenditure method, which of the following factors are taken intoaccount?1. Final household consumptionexpenditure2. Expenditure on intermediate goods3. Final capital expenditure4. Government expenditure onunemployment allowanceSelect the correct answer using the codegiven below.a)1 and 4 onlyb)1, 3 and 4 onlyc)1 and 3 onlyd)2, 3 and 4 onlyCorrect answer is option 'C'. Can you explain this answer?
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