Q. Consider the following statements regarding the Expenditure Method of calculating GDP:
1.Expenditure on intermediate goods is included in GDP since they form part of the production process.
2.In the expenditure method, GDP is calculated as the sum of consumption expenditure, investment, government spending, and net exports.
Which of the statements given above is/are correct?
Answer: B
Notes:
Explanation:
- Expenditure on intermediate goods is not included in GDP to avoid double-counting. Only final expenditure (not meant for further production) is considered in GDP calculations.
- The Expenditure Method formula is:
GDP = C + I + G + (X – M)
where:- C = Final Consumption Expenditure
- I = Investment Expenditure
- G = Government Expenditure
- X = Exports
- M = Imports
- The formula ensures that only domestically produced final goods and services are counted.
Source: Laxmikant (Polity)
