Question

Which one of the following statements is CORRECT in the context of Gross Domestic Product (GDP) calculation?

• A. GDP includes unpaid domestic work.
• B. GDP includes government consumption expenditure.
• C. GDP excludes rent on owner-occupied houses.
• D. GDP excludes self-consumption of production by the producer.

Hint:

Government spending on goods and services forms an important component of GDP under the expenditure approach.

Answer 1

The Correct Option is B

Step 1: Recall how GDP is built.
By the spending method,
\[ GDP=C+I+G+(X-M) \]
The letter $G$ is government spending on goods and services.

Step 2: Test unpaid home work.
Cooking or cleaning at home is not sold in a market, so it stays out of GDP. That option is wrong.

Step 3: Test owner occupied rent.
The housing service an owner enjoys is counted as imputed rent and added in. So calling it excluded is wrong.

Step 4: Test self consumed output.
A farmer eating his own crop is given a value and counted. So that option is wrong too.

Step 5: Pick the survivor.
Government consumption spending clearly enters GDP through the $G$ term.
\[ \boxed{\text{GDP includes government consumption expenditure}} \]