Question

List the four components of GDP. Give an example of each.

Answer 1

The four most important components of GDP are:-

1. Personal consumption expenditure

2. Investment expenditure

3. Government spending

4. Net Exports

1. Personal consumption Expenditure:-

This component of GDP refers to the money spent by the households and other non profit organisation for their personal or private consumptions. It includes the consumption Expenditure on durable and non durable Expenditures.

For example durable goods like cars, refrigerators etc. and non durable goods like clothing, groceries etc.

2. Investment expenditure:-

It refers to the expenses incurred by an individual or a firm on final goods and services or on purchase of productive capital goods.

Example capital goods like factories,machineries, vehicles etc.

3. Government spending:-

It refers to the expenditure on goods and services made by the government which includes all the government consumption, Investment and transfer payments.

Example expenditures on social securities,subsidies to certain firms or organizations.

4 Net Exports:-

It refers to the country's total value of goods and services that a country imports which is deducted from the value of a country's total exports.

Example natural gas, agricultural products etc.