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CA Foundation · Business Economics · Determination of National Income

Which of the following items is excluded from the calculation of Gross Domestic Product (GDP) using the expenditure method?

Second-hand car purchases are excluded because they represent transfers of existing goods, not new production. GDP only counts newly produced items within the accounting period. Sales of existing assets do not add to current output.

  1. ASpending on newly constructed residential buildings
  2. BGovernment expenditure on defence equipment
  3. CInvestment in machinery by manufacturing firms
  4. DPurchases of second-hand cars from the used car marketCorrect

Explanation

GDP measures the value of newly produced goods and services within a period. Second-hand car sales do not represent new production; they are merely transfers of existing assets. The other options all involve new expenditure on current production and are thus included in GDP calculations.

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