Question

The following information relates to an economy (in ₹ crore): \[ \begin{aligned} &\text{Private Final Consumption Expenditure} = 8,000 &\text{Government Final Consumption Expenditure} = 2,000 &\text{Gross Domestic Capital Formation} = 3,000 &\text{Net Exports} = -500 \end{aligned} \] Calculate the GDP at Market Price using the Expenditure Method.

• A. ₹12,000 crore
• B. ₹12,500 crore
• C. ₹13,000 crore
• D. ₹13,500 crore

Hint:

Always remember: \[ GDP_{MP}=C+I+G+(X-M) \] If imports exceed exports, Net Exports become negative and reduce GDP.

Answer 1

The Correct Option is B

Concept: Under the Expenditure Method, Gross Domestic Product at Market Price is calculated as the sum of expenditure incurred on final goods and services produced within the domestic territory during an accounting year. The formula is: \[ GDP_{MP}=C+I+G+(X-M) \] where:
• \(C\) = Private Final Consumption Expenditure
• \(I\) = Gross Domestic Capital Formation
• \(G\) = Government Final Consumption Expenditure
• \(X-M\) = Net Exports This method measures aggregate demand in the economy.

Step 1: Write the given values. \[ C=8000 \] \[ I=3000 \] \[ G=2000 \] \[ (X-M)=-500 \]

Step 2: Substitute into the GDP formula. \[ GDP_{MP}=8000+3000+2000+(-500) \] \[ GDP_{MP}=13000-500 \] \[ GDP_{MP}=12500 \]

Step 3: Economic interpretation. The economy generated total final expenditure worth ₹13,000 crore, but because imports exceeded exports by ₹500 crore, net exports became negative. Therefore, \[ GDP_{MP}=₹12,500 \text{ crore} \] Hence, option (B) is correct.