Why is money received as a gift not included in the expenditure method?
Answer and explanation
Correct answer: Because it is a transfer payment, not expenditure on currently produced final goods or services
A gift is a transfer payment: purchasing power is transferred from one person or institution to another without a current good or service being supplied in exchange. The gift itself therefore does not represent current production and is not included in expenditure-based national income. If the recipient later spends the money on a newly produced final good or service, that later purchase is counted under the appropriate category, such as consumption. The original transfer is not counted again.
Frequently asked questions
What is the correct answer to this question?
Because it is a transfer payment, not expenditure on currently produced final goods or services
Why is this the correct answer?
A gift is a transfer payment: purchasing power is transferred from one person or institution to another without a current good or service being supplied in exchange. The gift itself therefore does not represent current production and is not included in expenditure-based national income. If the recipient later spends the money on a newly produced final good or service, that later purchase is counted under the appropriate category, such as consumption. The original transfer is not counted again.
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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