Methods of calculating national income - Expenditure Method

Correct answer: A. 900

Explanation: Using the expenditure method, GDP at market price is calculated as C + I + G + (X − M). Substituting the values gives 600 + 200 + 150 + (90 − 140) = 950 − 50 = 900. Imports are subtracted because they are not domestic production, while exports are added because they represent domestic production sold abroad. Hence, option A is correct.

Correct answer: A. Government final consumption expenditure

Explanation: Government education is a final service provided to the public. Since there may not be a market price for a government school's service, national accounts generally value such non-market output by the cost of providing it, including compensation paid to teachers and other operating costs. This value is recorded through government final consumption expenditure, not as private investment, exports, or an intermediate good.

Correct answer: A. Consumption, investment, government consumption, and net exports

Explanation: Under the expenditure method, GDP is represented as C + I + G + (X − M): private consumption, investment, government final consumption expenditure, and net exports. Option A lists exactly these components. Wages, rent, interest, and profit belong mainly to the income approach, while intermediate consumption, old-share transactions, and pensions are not GDP expenditure components in this form.

Correct answer: B. Because they are current output and treated as inventory investment

Explanation: GDP measures production during the accounting period, not merely goods sold to final buyers. Goods produced but unsold at the end of the year are recorded as an increase in inventories, which is a component of investment in the expenditure method. Their inclusion ensures that current production is counted even when sale occurs later.

Correct answer: B. It is added as an export

Explanation: A good produced domestically and sold to a foreign buyer is an export. Under the expenditure method, GDP is calculated as C + I + G + (X − M), where X represents exports and M represents imports. Exports are added because they are part of domestic production purchased by foreigners; imports are subtracted because they were produced outside the country.

Correct answer: A. It is included in consumption and subtracted as imports

Explanation: In the expenditure formula, GDP at market price is calculated as C + I + G + (X − M). A consumer’s purchase of a laptop initially appears in consumption expenditure, but the laptop was produced abroad. Its value is therefore deducted as imports, preventing foreign production from being counted in domestic GDP. Thus, option A is correct.

Correct answer: A. Gross domestic capital formation

Explanation: Investment in the expenditure approach means expenditure on newly produced capital goods, construction, and changes in inventories; together these are represented by gross domestic capital formation. Buying old shares is a financial transaction and does not represent current production. Pensions and grants are transfers, not investment in current GDP.

Correct answer: A. It enters consumption and is deducted under imports

Explanation: In the expenditure approach, household purchase of a television is initially recorded under private consumption expenditure. However, an imported television was not produced domestically, so its value is included in imports and subtracted in the expression GDP = C + I + G + (X − M). The consumption addition and import deduction neutralize its effect on domestic GDP.

Correct answer: A. Government final consumption expenditure

Explanation: When the government purchases medicines for public hospitals and uses them to provide health services, the purchase represents expenditure on goods used for current public service provision. It can therefore enter government final consumption expenditure in the expenditure approach to GDP, subject to the accounting treatment of inventories. It is not foreign factor income, an old resale, or unpaid household work.

Correct answer: A. 1,800

Explanation: Using the expenditure method, GDP = C + I + G + (X − M). Substituting the values gives GDP = 1,200 + 450 + 300 + (250 − 400) = 1,200 + 450 + 300 − 150 = 1,800. Imports are subtracted because they are included in consumption, investment, or government spending but are not domestic production. Therefore, option A is correct.

Correct answer: A. It is added as an export

Explanation: A good produced within the domestic territory and sold to a foreign buyer is an export. Under the expenditure method, GDP is calculated as C + I + G + (X − M), so exports are added because they represent domestic production purchased by foreigners. Imports are subtracted because they are produced outside the domestic economy.

Correct answer: A. Consumption, investment, government expenditure and net exports

Explanation: Under the expenditure approach, GDP is measured by adding expenditure on final goods and services: private final consumption expenditure, investment expenditure, government final consumption expenditure, and net exports. Net exports equal exports minus imports. Wages, rent, interest, and profit are income-method components, not expenditure components.

Correct answer: B. Gross domestic capital formation

Explanation: Under the expenditure method, purchases of newly produced fixed assets used repeatedly in production are recorded as gross domestic capital formation, a component of investment expenditure. A new machine provides productive services over several years, so option B is correct. It is not private consumption, a government transfer, or intermediate consumption. Depreciation is later considered when converting gross capital formation into net capital formation.

Correct answer: B. ₹1,300

Explanation: The expenditure approach calculates GDP as C + I + G + (X − M), where exports are added and imports are subtracted because imports are produced abroad. Substitution gives ₹700 + ₹250 + ₹300 + ₹180 − ₹130 = ₹1,300. Therefore option B is correct. The other values arise from arithmetic errors, such as adding imports or misadding the components. Because the data use current prices, the result is nominal GDP.