Question : The expenditure method of calculating GDP includes the sum of ______.

 

Option 1: Consumption, investment, government expenditure, and net exports

Option 2: Wages, rent, interest, and profit

Option 3: Output of all sectors in the economy

Option 4: Depreciation and indirect taxes

Correct Answer: Consumption, investment, government expenditure, and net exports

Solution : The correct answer is (a) Consumption, investment, government expenditure, and net exports.

The expenditure method of calculating GDP involves summing up the different components of spending within an economy. These components are:

1. Consumption: This refers to the spending by households on goods and services for personal use. It includes expenditures on items such as food, clothing, housing, healthcare, and transportation.

2. Investment: This includes spending on capital goods, such as machinery, equipment, and structures, with the aim of increasing productive capacity or generating future economic benefits. It includes business investment in fixed assets, residential investment in housing, and changes in inventories.

3. Government expenditure: This represents the spending by the government on goods, services, and public infrastructure. It includes expenditures on areas such as defense, education, healthcare, transportation, and public administration.

4. Net exports: Net exports represent the difference between the value of exports and imports. It reflects the trade balance of a country and takes into account the economic activity related to international trade.

By summing up these components of expenditure, we can calculate the Gross Domestic Product (GDP), which represents the total value of all final goods and services produced within a country's borders in a specific time period.