In the expenditure (demand) approach to GDP accounting, GDP is calculated by adding together which components?

• A. Wages, interest, rent, and profits
• B. Total sales revenue of all firms plus household savings
• C. Consumption, investment, government purchases, and net exports
• D. Imports, intermediate goods, depreciation, and transfer payments

Answer: (C)

Verified step by step guidance

1. Understand that the expenditure approach to GDP calculates the total market value of all final goods and services produced within a country in a given period by summing specific components of spending.
2. Identify the four main components included in the expenditure approach: Consumption (C), Investment (I), Government Purchases (G), and Net Exports (NX).
3. Recall that Consumption (C) refers to household spending on goods and services, Investment (I) includes business expenditures on capital goods, Government Purchases (G) are government expenditures on goods and services, and Net Exports (NX) is calculated as exports minus imports.
4. Recognize that wages, interest, rent, and profits are components of the income approach, not the expenditure approach, and that intermediate goods, depreciation, and transfer payments are excluded from GDP calculations to avoid double counting or because they do not represent current production.
5. Summarize that the expenditure approach formula for GDP is: \[GDP = C + I + G + (X - M)\] where \[X\] is exports and \[M\] is imports.