Which component of GDP includes spending by households?

The component of GDP that includes spending by households is consumption. This category represents the total value of all goods and services purchased by households within a country. It encompasses a wide range of expenditures, including spending on durable goods (like cars and appliances), nondurable goods (like food and clothing), and services (such as healthcare, education, and entertainment).

When analyzing economic growth and overall economic health, consumption is considered a crucial component because it typically accounts for a significant portion of GDP in developed economies. When households increase their spending, it signals confidence in the economy, often leading to further economic growth as businesses respond by increasing production to meet demand.

The other components mentioned—investment, net exports, and government purchases—represent different types of economic activities and do not directly reflect household spending. Investment pertains to spending on capital goods to enhance future production, net exports measure the difference between a country's exports and imports, and government purchases include expenditures on goods and services by the government itself. As such, consumption is uniquely tied to household expenditures, making it the correct answer in this context.