Which statement correctly describes the difference between (C) and (I) in the expenditure method of calculating national income?
Answer and explanation
Correct answer: (C) is final consumption expenditure and (I) is capital formation or investment expenditure
In the expenditure identity, C means final consumption expenditure by households and the government, depending on the classification being used. I means investment expenditure or capital formation, such as purchases of machinery, buildings, equipment, and changes in inventories. Thus option A is correct. Imports and exports are represented by M and X, while taxes, subsidies, transfers, and borrowing are not the meanings of C and I. The standard identity is GDP = C + I + G + (X − M).
Frequently asked questions
What is the correct answer to this question?
(C) is final consumption expenditure and (I) is capital formation or investment expenditure
Why is this the correct answer?
In the expenditure identity, C means final consumption expenditure by households and the government, depending on the classification being used. I means investment expenditure or capital formation, such as purchases of machinery, buildings, equipment, and changes in inventories. Thus option A is correct. Imports and exports are represented by M and X, while taxes, subsidies, transfers, and borrowing are not the meanings of C and I. The standard identity is GDP = C + I + G + (X − M).
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Methods of calculating national income - Expenditure Method.
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