Question

2. Describe the four major components of expenditure in GDP and write the equation used to represent the relationship between GDP and the four expenditure components.

3. Classify each of the following items as a component consumptions expenditure, investment, or government expenditure on goods or services:
a. Refrigerator bought by a homemaker.
b. X-Ray devices bought by the Ministry of Health.
c. Coffee beans bought by Starbucks
d. New coffee grinders bought by Starbucks

Answer 1

2) four major component of gdp are

A) personal consumption expenditure

It includes consumer spending on goods and services in which goods are tangible and of two type durable and non durable . Durable goods used for long term likewlike car and furniture non durable goods used for short term like food, clothes. Services are intangible ex banking services , education.

B) business investment

Business investment includes purchases made by company to produce consumer goods it doesn't inclue intermediate goods it is input goods used for production of other goods.

C) government spending or expenditure includes all government investment, government spending and transfer payments made by government.

D) net exports

It is value of export minus imports of country

Equation of gdp is

Y= C+I+G+( X-M)

3)a) it is consumption expenditure because expenditure made by consumer for personal purpose.

B) it is government spending as ministry of health is government body and expenditure is made by government.

C)it is not included in gdp as expenditure on beans is not an expenditure on final good.

D)it is investment expenditure as coffee grinder is capital good for Starbucks.

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