GED Social Studies TestEconomicsMedium
A consumer purchases a new smartphone for $800. The manufacturer of the phone sources its components from various countries, assembles the phone in another country, and then sells it globally. What is the most accurate term for the $800 spent by the consumer in the context of calculating a nation's Gross Domestic Product (GDP)?
- AInvestment expenditure
- BIntermediate good expenditure
- CConsumption expenditure
- DGovernment expenditure
Show answer & explanationAnswer & explanation
Correct answer: C. Consumption expenditure
Consumption expenditure refers to spending by households on goods and services, which directly includes the purchase of a smartphone by a consumer. This is a primary component of GDP calculation.
Why the other options are wrong
- A. Investment expenditure refers to spending by businesses on capital goods (e.g., factories, machinery) or by households on new housing.
- B. Intermediate goods are used in the production of final goods and are not directly counted in GDP to avoid double-counting.
- D. Government expenditure refers to spending by the government on goods and services.
Consumption Expenditure
Spending by households on goods and services, excluding new housing.
- Largest component of GDP in most developed economies.
- Includes durable goods, non-durable goods, and services.
- Reflects consumer demand and economic health.
Memory trick: GDP is I + G + C + NX, the economic flow it reflects.