Question

Q12. Consider the following statements with respect to Gross Domestic Product (GDP):

1. It is the value added by all the firms in the economy.

2. It is the final value of goods and services produced in the economy.

3. It is the sum of final consumption and investment expenditure by the household, private and government sector and net of exports and imports.

4. It is the income received by the four factors of production.

Select the correct answer using the code given below.

• A. a) 1 and 2 only
• B. b) 1, 2 and 3 only
• C. c) 1, 2 and 4 only
• D. d) All of the above

Answer 1

The correct option is D

d) All of the above

An economy produces two types of final goods i.e. consumption and capital goods. Consumption goods get consumed and capital goods are used for further production process (capital goods are also called investment). These two types of goods are purchased by the four sectors of the economy

• Household sector (consumption goods)
• Private sector (capital goods)
• Government Sector (Capital and consumption goods)
• External Sector (Capital and consumption goods)
• GDP is the sum of the final value of all goods and services (consumption and capital) produced in the economy or it can also be defined as value added by all the enterprises in the economy. So (i) & (ii) statements are true.
• Whatever goods and services (consumption and capital) are produced in the economy is ultimately purchased by household, private, government sector and the rest are exported. So (iii) statement is true.
• By Income method, GDP is also equal to the income received by the four factors of production i.e. Profit, Rent, Interest and wages. So (iv) statement is also true.