In the expenditure approach, what does GDP measure?

• A. The market value of all final goods and services produced within a country’s borders during a given period, measured as $Y=C+I+G+NX$.
• B. The total value of all intermediate and final goods and services sold in the economy during a given period.
• C. The total income earned by a country’s residents, regardless of where production occurs (i.e., GNP).
• D. The government’s total expenditures on goods, services, and transfers during a given period.

Answer: (A)

Verified step by step guidance

1. Understand that GDP (Gross Domestic Product) using the expenditure approach measures the total market value of all final goods and services produced within a country's borders during a specific time period.
2. Recognize that GDP excludes intermediate goods to avoid double counting, focusing only on final goods and services that are ready for consumption or investment.
3. Recall the expenditure approach formula for GDP, which is expressed as: \(Y = C + I + G + NX\), where:
4. - \(C\) represents consumption expenditure by households,
5. - \(I\) stands for investment expenditure by businesses,
6. - \(G\) is government spending on goods and services, and
7. - \(NX\) is net exports, calculated as exports minus imports (\(NX = Exports - Imports\)).
8. By summing these components, you capture the total spending on the economy's output, which equals the GDP.