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CSEET · Economic and Business Environment · National Income Accounting and Related Concepts

Under the expenditure method, GDP at market prices is obtained as:

GDP by the expenditure method equals consumption plus investment plus government expenditure plus net exports, where net exports are exports minus imports. Imports are deducted because they represent spending on foreign output, not domestic production.

  1. AC + I + G + (X - M)Correct
  2. BC + I + G + (M - X)
  3. CC + I + (X - M) without government spending
  4. DC + G + X + M

Explanation

GDP is the sum of private consumption, investment, government spending and net exports (exports minus imports). Reversing the sign on net exports, as in the second option, wrongly adds imports and subtracts exports.

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