In an economy (Rs crore), final consumption expenditure is 600, of which 50 is spent on imported consumer goods. Investment expenditure is 200, of which 30 is on imported machines. Government final expenditure is 150, of which 20 is on imported goods. Exports are 120. What is the GDP?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs 970 crore
Given:
C = 600 (imports 50)
I = 200 (imports 30)
G = 150 (imports 20)
X = 120 (Rs crore)
C, I and G include spending on imported goods. GDP counts only what is produced at home, so total imports M = Cm + Im + Gm are subtracted once: GDP = C + I + G + X − M.
\( \displaystyle M = 50 + 30 + 20 = 100 \)
\( \displaystyle GDP = 600 + 200 + 150 + 120 - 100 = 970 \)
GDP is Rs 970 crore.
Option (1) Rs 1,070 crore — leaves the imports in.
Option (3) Rs 870 crore — subtracts the imports twice.
NCERT (2026-27): “2.2.2 Expenditure Method … Let Cm denote expenditure on the imports of consumption goods. Therefore C – Cm denotes that part of aggregate final consumption expenditure that is spent on the domestic firms. Similarly, let I – Im stand for that part of aggregate final investment expenditure that is spent on domestic firms, where I is the value of the aggregate final investment expenditure of the economy and out of this I m is spent on foreign investment goods. Similarly G – Gm stands for that part of aggregate final government expenditure that is spent on the domestic firms, where G is the aggregate expenditure of the government of the economy and Gm is the part of G which is spent on imports.” “… M ≡ Cm + Im + Gm is the aggregate imports expenditure incurred by the economy. …” |