Multiple Choice
Transfer payments (such as Social Security benefits or unemployment insurance) are not included in GDP calculations because they:
10. Measuring National Output and Income
Detailed Explanation of GDP Components
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In the expenditure approach to GDP, which component is typically the largest share of GDP in the United States?
A
Government consumption expenditures and gross investment (G)
B
Personal consumption expenditures (C)
C
Net exports (NX)
D
Gross private domestic investment (I)
Verified step by step guidance1
Understand that the expenditure approach to GDP calculates total economic output by summing four main components: Personal consumption expenditures (C), Gross private domestic investment (I), Government consumption expenditures and gross investment (G), and Net exports (NX).
Recall the formula for GDP using the expenditure approach: \(GDP = C + I + G + NX\).
Recognize that in the United States, Personal consumption expenditures (C) typically make up the largest portion of GDP because consumer spending on goods and services drives a significant part of economic activity.
Compare the relative sizes of each component: Government spending (G) and Gross private domestic investment (I) are important but generally smaller than consumption, while Net exports (NX) can be positive or negative but usually represent a smaller share.
Conclude that among the options given, Personal consumption expenditures (C) is the component that typically accounts for the largest share of GDP in the United States.
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