Question : Which component of GDP includes government spending on infrastructure and defense?

 

Option 1: Consumption expenditure

Option 2: Investment expenditure

Option 3: Government expenditure

Option 4: Net exports

Correct Answer: Government expenditure

Solution : The correct answer is (c) Government expenditure.

Government expenditure is the component of GDP that includes government spending on goods and services. This spending encompasses various areas, including infrastructure projects such as roads, bridges, and public facilities, as well as defense and security expenditures.

Government expenditure is a significant component of GDP because it represents the portion of total spending within an economy that is directly attributed to the government. It includes both consumption expenditure by the government, such as salaries of public employees and purchases of goods and services for public use, and investment expenditure, which refers to government spending on capital goods and infrastructure development.

While consumption expenditure represents the spending by households on goods and services, and investment expenditure represents spending by businesses on capital goods, it is the government expenditure component that captures the spending by the government sector. This includes infrastructure development, defense, education, healthcare, public transportation, and other public services that contribute to economic activity and the overall GDP of a country.