Consider the following statements about the expenditure method of calculating GDP:
(A) Imports are subtracted because C, I and G include spending on imported goods.
(B) Expenditure by bakers on the wheat they use up is a part of final expenditure.
(C) Exports are added because they are expenditure by foreigners on the goods of domestic firms.
(D) Final expenditure on investment goods is not included, as it is not consumption.
(E) Expenditure on intermediate goods is left out of final expenditure.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A), (C) and (E) only
The expenditure method adds final expenditure on domestic goods.
(A) Imports are subtracted because C, I and G include spending on imported goods. — Correct. C, I and G include spending on imports, so imports (M) are subtracted.
(B) Expenditure by bakers on the wheat they use up is a part of final expenditure. — Incorrect. Wheat used up by bakers is an intermediate good, not final expenditure.
(C) Exports are added because they are expenditure by foreigners on the goods of domestic firms. — Correct. Exports are spending by foreigners on domestic goods.
(D) Final expenditure on investment goods is not included, as it is not consumption. — Incorrect. Investment expenditure is included; investment goods remain with the firm.
(E) Expenditure on intermediate goods is left out of final expenditure. — Correct. Expenditure on intermediate goods is not included.
NCERT (2026-27): “2.2.2 Expenditure Method … In this method we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes. The Rs 50 worth of wheat which the bakers buy from the farmers counts as intermediate goods, hence it does not fall under the category of final expenditure. …” “2.2.2 Expenditure Method … Observe that unlike the expenditure on intermediate goods which is not included in the calculation of GDP, expenditure on investments is included. The reason is that investment goods remain with the firm, whereas intermediate goods are consumed in the process of production …” “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. …” “2.2.2 Expenditure Method … (d) the export revenues that firm i earns by selling its goods and services abroad. This will be denoted by Xi. …” |