How is GDP measured using the expenditure approach? List the components.

How is GDP measured using the expenditure approach? List the components.

• A. GDP equals Consumption plus Investment plus Government purchases plus Net exports (exports minus imports).
• B. GDP = Consumption + Investment + Government purchases + Net exports (X - M).
• C. GDP = Wages + Profits + Rent + Taxes.
• D. GDP = Exports + Imports + Government spending + Consumption.

Answer: (B)

GDP measured by the expenditure approach sums the total spending on domestically produced final goods and services by four groups: households (consumption), businesses (investment), the government (government purchases), and foreigners (net exports). Net exports are exports minus imports, so the formula is GDP = C + I + G + NX, with NX = X − M. This means spending on imports reduces GDP while exports add to it, reflecting that only domestic production is being counted. The phrasing that uses net exports (exports minus imports) is the correct way to capture international trade in this approach. The alternative that uses wages, profits, rent, and taxes corresponds to the income approach, not expenditure. The option that adds imports as a positive term would overstate GDP by not subtracting spending on foreign-produced goods.

GDP measured by the expenditure approach sums the total spending on domestically produced final goods and services by four groups: households (consumption), businesses (investment), the government (government purchases), and foreigners (net exports). Net exports are exports minus imports, so the formula is GDP = C + I + G + NX, with NX = X − M. This means spending on imports reduces GDP while exports add to it, reflecting that only domestic production is being counted. The phrasing that uses net exports (exports minus imports) is the correct way to capture international trade in this approach. The alternative that uses wages, profits, rent, and taxes corresponds to the income approach, not expenditure. The option that adds imports as a positive term would overstate GDP by not subtracting spending on foreign-produced goods.