Methods of calculating national income - Expenditure Method

The commission paid to a property broker is payment for a brokerage service supplied during the current year, so that service contributes to current GDP. The old house itself was produced in an earlier period; its resale merely transfers ownership and does not add the house's full value again. A company's share repurchase and the purchase of government bonds are financial transactions, not purchases of current goods or services. Thus, only the current brokerage service among the options is included.

Unpaid voluntary labour usually takes place without a market transaction or an observed price. In the expenditure method, national accounts require a reasonably reliable monetary value for recorded output; assigning a comparable market wage to every voluntary activity is difficult and may be subjective. This does not mean that the activity has no social value. It means that conventional GDP accounting generally excludes unpaid household and volunteer services unless specific valuation and recording rules apply.

An insurance premium is not identical to the value of insurance production. It may include an amount related to claims and risk pooling, whereas the insurance company’s actual productive output is the insurance service charge or implicit service margin. In national accounting, only the service component is treated as household consumption expenditure, so option A is correct.

The expenditure identity for an open economy is GDP = C + I + G + (X − M). Consumption of imported goods may appear in consumption expenditure, but those goods were produced outside the domestic territory. Imports are therefore subtracted so that GDP measures only domestic production. If domestic production falls while imports rise, higher consumption alone cannot be taken as evidence of higher GDP. Option B is correct.

Using the expenditure method, GDPMP = C + I + G + (X − M). Substituting the values gives GDPMP = 900 + 350 + 240 + (180 − 270). Net exports are −90 because imports exceed exports. Therefore, GDPMP = 900 + 350 + 240 − 90 = 1400. Option A is correct; adding exports and imports without subtracting imports would produce an incorrect result.