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 the definition of GDP.
Gross Domestic Product (GDP) measures the monetary value of all final goods and services produced within a country during a given period.
Using the expenditure method, GDP is expressed as
\[ GDP = C + I + G + (X-M) \] where
\[ C=\text{Consumption expenditure} \] \[ I=\text{Investment expenditure} \] \[ G=\text{Government expenditure} \] \[ X-M=\text{Net exports} \]

Step 2: Analyze option (A).
Unpaid domestic work such as cooking or household chores is generally not traded in the market and hence is excluded from GDP calculation.
Therefore, option (A) is incorrect.

Step 3: Analyze option (B).
Government consumption expenditure on goods and services is included in GDP.
Thus, option (B) is correct.

Step 4: Analyze option (C).
Imputed rent of owner-occupied houses is included in GDP to account for housing services consumed by homeowners.
Therefore, option (C) is incorrect.

Step 5: Analyze option (D).
Self-consumed production, especially in agriculture and subsistence sectors, is included in GDP if it has measurable economic value.
Therefore, option (D) is incorrect.

Step 6: Final conclusion.
Hence, the correct statement is
\[ \boxed{\text{GDP includes government consumption expenditure}} \]