GDP = C + I + G + X. Which components are included in this formula?

GDP = C + I + G + X. Which components are included in this formula?

• A. The components are Wages, Taxes, Government Expenditures, Exports
• B. Consumer spending, Business investments, Government expenditures, Net Exports
• C. Consumption, Investment, Government Spending, Imports
• D. Consumer spending, Investment, Government Expenditures, Interest rate

Answer: (B)

The main concept is that GDP in the expenditure approach is the sum of spending on final goods and services by different sectors: households, firms, the government, and the net balance with the rest of the world. This last part is net exports, which is exports minus imports. The best answer matches that structure: it names consumer spending, business investments, government expenditures, and net exports. Net exports accounts for the fact that spending on imports is not production of domestic goods, so imports are subtracted from exports to reflect the true international trade effect on domestic GDP. Other options don’t fit because they either include components not used in this measure (like wages, taxes, or an interest rate), or they use imports instead of net exports.

The main concept is that GDP in the expenditure approach is the sum of spending on final goods and services by different sectors: households, firms, the government, and the net balance with the rest of the world. This last part is net exports, which is exports minus imports.

The best answer matches that structure: it names consumer spending, business investments, government expenditures, and net exports. Net exports accounts for the fact that spending on imports is not production of domestic goods, so imports are subtracted from exports to reflect the true international trade effect on domestic GDP.

Other options don’t fit because they either include components not used in this measure (like wages, taxes, or an interest rate), or they use imports instead of net exports.