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CA Foundation · Business Economics · Determination of National Income

In the expenditure method, with private consumption ₹700 crore, gross domestic capital formation ₹250 crore, government consumption ₹150 crore, exports ₹120 crore and imports ₹140 crore, what is GDP at market price?

GDP at market price is ₹1,080 crore. It equals consumption 700 plus investment 250 plus government spending 150 plus net exports of minus 20 (exports 120 less imports 140). Adding imports instead of subtracting them gives a wrong figure of ₹1,120 crore.

  1. A₹1,080 croreCorrect
  2. B₹1,120 crore
  3. C₹1,360 crore
  4. D₹1,260 crore

Explanation

GDP = C + I + G + (X − M) = 700 + 250 + 150 + (120 − 140) = 1,100 − 20 = ₹1,080 crore. Adding imports instead of subtracting gives ₹1,120 crore, which is the wrong-sign error. Ignoring imports gives ₹1,220 crore.

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