Question

Determine whether each of the following counts as consumption, investment, govemment purchases, net exports, or none of these, under the expenditure approach to calculating GDP a. The construction of a court house: None of these Net exports Investment b. A taxicab ride: Consumption Net exports Investment None of these Government purchases c The purchase of a taxicab by a taxicab company Investment None of these Government purchases Net expors d. A student buying a textbook None of these Not exports Govemment purchases Investment e. The trading of municipal bonds (a type of financial investment offered by city governments) Investment None of these Net exports

Answer 1

The expenditure method includes all expenditure undertaken by all the sectors of an economy: Households, Government, Firms and the Foreign Sector.

Ans a.) Government spending

since a court house is a government property, and the government spends on such projects for the social welfare and thus its included in government spending/purchases.

Ans b.) consumption

a taxicab ride taken by a ordinary person will be included in consumption expenditure as it can be understood as a service availed by the consumer.

Ans c.) investment

buying a taxicab by a taxicab company can be understood simply as an investment by a company in machinery and equipment.

Ans d.) Consumption

a student buying is textbook is a final consumption expenditure and thus included in consumption spending.

Ans e.) None of these

since the trading of financial assets are not included in gdp calculation, therefore trading of government bonds will not be included in GDP calculation through expenditure method.