National income (expenditure method)

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