How to Determine GDP Expenditure Categories from Given Items

Question 1

From the following items, determine in which expenditure category of GDP each item would be placed:

New computer for your home.

Smartphone for personal use.

New office building for a company.

Answer:

The items would be categorized as follows:
1. New computer for your home: Consumer Spending
2. Smartphone for personal use: Consumer Spending
3. New office building for a company: Investment Expenditure

When determining the category of GDP expenditure for items, it is important to consider the purpose and nature of the purchase.

Consumer spending includes purchases made by households for personal use, such as the new computer for your home and smartphone for personal use. These expenditures are considered consumption and form a significant portion of GDP.

On the other hand, investment expenditure involves purchases made by businesses or entities for the purpose of generating future income or productive capacity. The new office building for a company falls under this category as it represents investment in infrastructure for business operations.

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