Which of the following is a component of GDP?

• A. Net Exports
• B. Unemployment Rate
• C. Inflation
• D. Government Debt

Answer: (A)

The main idea being tested is how GDP is broken down in the expenditure approach. In that framework, GDP equals consumer spending plus business investment plus government spending plus net exports (exports minus imports). Net exports directly reflect the country’s trade balance and contribute to GDP because exports add to domestic production while imports subtract from it. If a country sells more abroad than it buys from abroad, net exports are positive and boost GDP; if it buys more than it sells, net exports are negative and drag GDP down.

Unemployment rate, inflation, and government debt are not current spending components in the GDP identity. The unemployment rate is a labor market indicator, inflation is a measure of price changes, and government debt is a stock of liabilities built up over time. (Note that government spending is included in GDP, but the debt level itself is not a direct GDP component.)