Multiple Choice
Which of the following is the correct calculation of real gross domestic product (GDP)?
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10. Measuring National Output and Income
Expenditure Approach for Measuring GDP
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Which of the following is typically the largest expenditure component of Gross Domestic Product (GDP) in most economies?
A
Consumption
B
Net exports
C
Government spending
D
Investment
Verified step by step guidance1
Step 1: Understand the components of GDP, which are typically expressed as \(GDP = C + I + G + (X - M)\), where \(C\) is Consumption, \(I\) is Investment, \(G\) is Government spending, and \((X - M)\) is Net exports (exports minus imports).
Step 2: Recognize that Consumption (\(C\)) refers to household spending on goods and services, such as food, clothing, and healthcare, which usually makes up a large portion of GDP.
Step 3: Investment (\(I\)) includes business expenditures on capital goods and residential construction, which is generally smaller than consumption in most economies.
Step 4: Government spending (\(G\)) covers government expenditures on goods and services but excludes transfer payments; it is usually less than consumption.
Step 5: Net exports (\(X - M\)) can be positive or negative but tend to be smaller relative to consumption in many economies, especially those with large domestic markets.
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