In the expenditure approach to GDP (GDP = C + I + G + NX), which component is typically the largest in the United States?

• A. Net exports (NX)
• B. Consumption (C)
• C. Government purchases (G)
• D. Investment (I)

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the expenditure approach formula for GDP, which is given by \(GDP = C + I + G + NX\), where \(C\) is consumption, \(I\) is investment, \(G\) is government purchases, and \(NX\) is net exports (exports minus imports).
2. Step 2: Recognize that each component represents a different type of spending in the economy: consumption is spending by households on goods and services, investment is spending on capital goods, government purchases are spending by the government, and net exports represent the difference between exports and imports.
3. Step 3: Recall that in the United States, consumption (\(C\)) typically accounts for the largest share of GDP because household spending on goods and services forms the bulk of economic activity.
4. Step 4: Compare the relative sizes of the components: investment (\(I\)) and government purchases (\(G\)) are significant but generally smaller than consumption, while net exports (\(NX\)) are often negative or small due to the U.S. trade deficit.
5. Step 5: Conclude that among the components of the expenditure approach, consumption (\(C\)) is typically the largest contributor to GDP in the United States.