Question

Explain the expenditure method for the estimation of national income of a country.

Answer 1

The spending technique is the third way to calculate national income. The consumption and investment technique is another name for this approach. This approach involves adding up government purchases of goods and services, net domestic investment, net foreign investment, and personal consumption expenditure. The gross national product at market value is the result of adding up all of these expenses. In order to determine net national product at market price less indirect taxes, we subtract depreciation. This yields net national income at factor cost. The underlying premise of this approach is that national income and national expenditure are equal. It can be expressed as National Income⁢ (Y) = C + I + G + (X − M).

C = Private Consumption Expenditure

I = Investment Expenditure

G = Government Final Consumption Expenditure

X − M = Net Exports (Exports minus Imports)

It means national income (Y) = Private consumption (C) + Private Investment (I) + Government expenditure (G) + (Export (X) − Import (M),