Question

There are FOUR main components of GDP. Explain the components.

Answer 1

Answer- Four main components of GDP are:

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

1. Private Consumption Expenditure (C) - this component measure the money value of consumer goods and services purchased by household and non profit organizations. These are classified into consumer durable goods, semi durable, non durable goods and services.

2. Investment Expenditure (I) - investment means addition to physical stock of capital during a period of time. Investment includes building of machinery housing construction, construction of factories and offices, addition to a firm's inventory of goods.

3. Government expenditure (G) - this component summarizes government spending on goods and services. It includes purchase of intermediate goods, wages and salaries paid by government. All government purchase are a proxy measure for government output.

4. Net Exports (X - M) - it shows the difference between domestic spending on foreign goods (imports) , and foreign spending on domestic goods (exports). Thus,the difference between the exports and imports of a country is called Net Exports.