Method to calculate national income with expenditure methods

1. Commerce Zone By Navratan Sir
Expenditure
Method

2. National Income (Expenditure Method)
The expenditure method is the most widely
used approach for estimating GDP, which is
a measure of the economy's output produced
within a country's borders irrespective of
who owns the means to production. The GDP
under this method is calculated by summing
up all of the expenditures made on final
goods and services.

3. Formula Expenditure Method
 Expenditure refers to all the purchases made by residents, government, or business
enterprises. The expenditure method takes the following elements into consideration:
 Purchase of consumer goods and services by residents and households (C)
 Government expenditure on goods and services (G)
 Business enterprises’ expenditure on capital goods and stocks (I)
 Net exports (exports-imports) (NX)
 Hence, according to the expenditure method:
 National Income = C + G + I + NX
 NX=Net Export or Export- Import

4. These should not be added
 While determining income using the
expenditure approach, we need to exclude
expenditure on second-hand goods,
purchase of shares and bonds, expenditure
of transfer payments (unemployment
benefits, pension), and purchase of
intermediate products.

5. Numerical Expenditure Method
 .2- Calculate GDP at MP by using Expenditure Method
 Formula: National Income = C + G + I + NX
 800+450+125+(30)
 1375+30=1405
Items Amount
1 Private final consumption expenditure 800
2 Government Final Consumption Expenditure 450
3 Gross Domestic Investment 125
4 Net Exports 30

6. Numerical-2
 2
Items Amount
1 Private final consumption expenditure 1200
2 Government Exports – Imports Final Consumption
Expenditure
2400
3 Gross Domestic Fixed Capital Formation 3500
4
6
Solution
:
Change in Stock
Exports – Imports
C+I+G+(X-M)=1+2+3+4+(6)=
1200+2400+3500+600+700=8400
600
700

7. Numerical-3
Private final consumption 1000
Govt final consumption exp 600
Net domestic capital formation 450
Change in stock 50
Depreciation 100
Exports 150
Imports 170
Net factor income from abroad -40
Indirect taxes 100
Subsidies
Operating surplus
75
200
Sales 150
 Using the formula C+I+G+(X-M) we get
GDPmp
 1000+(450+100)+600+(150-170)=
 1000+550+600-20=2130
 I=NDCF+Dep=GDCF=550
 Now national income is =NNPfc
 GDPmp-Dep+NFIA-(NIT)
 2130-100+(-40)-(100-75)
 2130-100-40-25=1965

8. Numerical-4
Personal final consumption
expenditure
1220
Govt final consumption expenditure 890
GDCF 770
Change In stock 300
Depreciation 200
Net exports 135
NFIA -100
NIT 120
Wages and salary 600
 Using the formula C+I+G+(X-M)
we get GDPmp
 1220+770+300+890+(135)=3315
 NNPfc=GDPmp-D+NFIA-NIT
 3315-200+(-100)-120=
 =2895
 Dep not adjusted as in GDCF
already
 Change in stock also indicates
investment