Question

By giving reason, explain how should the following be treated in estimating gross domestic product at market price?
(i) Fees to a mechanic paid by a firm.
(ii) Interest paid by an individual on a car loan taken from a bank.
(iii) Expenditure on purchasing a car for use by a firm.

Answer 1

(i) It is not included because it is an intermediate cost of the firm.
(ii) It is not included because the loan is taken to meet consumption expenditure and therefore interest paid on such a loan is not a factor payment.
(iii) It is included because it is an investment expenditure, a final expenditure.