[Solved] Which of the following statements about the expenditure method of GDP calculation is CORRECT? — Ans: Investment includes spending on new capital goods and changes in inventories | Economic Awareness

Economic Awareness - Sectors of Indian Economy

Which of the following statements about the expenditure method of GDP calculation is CORRECT?

AImports are added to GDP as they increase consumption

BInvestment includes spending on new capital goods and changes in inventories

CGovernment transfer payments are included under government expenditure

DExports are subtracted from GDP as they represent outflow of goods

Step-by-Step Solution

Step 1: Analyze treatment of imports and exports
Imports are subtracted because they are not produced domestically; exports are added as domestic production sold abroad.
Step 2: Understand government expenditure and investment
Transfer payments are excluded from government expenditure. Investment includes spending on new capital goods and inventory changes.
Step 3: Evaluate options
Only the statement about investment is correct. Imports are subtracted, transfer payments excluded, exports added.
Final Answer:
Investment includes spending on new capital goods and changes in inventories → Option B
Quick Check:
Investment in GDP = new capital goods plus inventory changes ✅

Quick Trick: Remember imports subtract, exports add in GDP calculation.

Common Mistakes:

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