Question

What are the categories of expenditure taken in calculating national income by the expenditure method?

Answer 1

The expenditure method calculates national income by assessing the total spending on final goods and services within the economy. This total expenditure is classified into four main categories:

1. Private final consumption expenditure, which includes household spending on consumer goods and services, as well as expenditures by private non-profit institutions such as schools serving households.
2. Investment expenditure, which refers to spending on capital goods, includes business fixed investment, inventory accumulation, and residential construction.
3. Government final consumption expenditure, representing government spending on goods and services for public use.
4. Net exports are calculated as the value of exports of goods and services minus the value of imports from other countries.