While estimating GDP by the expenditure method, which payment is not included because it does not represent current production?
Answer and explanation
Correct answer: Payment of an old-age pension by the government
An old-age pension is a transfer payment: the government distributes income without purchasing a currently produced good or service in exchange. It is therefore excluded from GDP expenditure. A new bicycle is household consumption, new school textbooks are government final expenditure, and a new machine is investment expenditure. The expenditure identity counts current final output, not pure transfers.
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What is the correct answer to this question?
Payment of an old-age pension by the government
Why is this the correct answer?
An old-age pension is a transfer payment: the government distributes income without purchasing a currently produced good or service in exchange. It is therefore excluded from GDP expenditure. A new bicycle is household consumption, new school textbooks are government final expenditure, and a new machine is investment expenditure. The expenditure identity counts current final output, not pure transfers.
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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