What are the components that make up GDP?

The correct answer identifies the fundamental components that comprise Gross Domestic Product (GDP) according to the expenditure approach. GDP measures the total economic output of a country, and its calculation is based on four main components: consumption, investment, government spending, and net exports.

Consumption refers to the total spending by households on goods and services. This is typically the largest component of GDP, reflecting demand within the economy.

Investment encompasses business expenditures on capital goods, such as machinery and equipment, which are crucial for production. It also includes residential construction and changes in business inventories.

Government spending covers all expenditures by government entities on goods and services. This does not include transfer payments, such as pensions or unemployment benefits, since these do not correspond to the purchase of goods or services.

Net exports represent the difference between a country's exports and imports. This measure indicates whether a country sells more to foreign countries than it buys from them, affecting the overall GDP.

The other choices present components that do not accurately account for all elements necessary in the GDP calculation or include irrelevant terms. For instance, net savings is not a direct component of GDP, and labor or profits are aspects of production rather than separate components in the GDP framework.