Question

Explain the steps involved in the calculation of National Income by the Expenditure method.

Answer 1

The Expenditure approach calculates national income by summing up household, business, and government expenditures on final goods and services. Additionally, this is increased by the amount received from net exports. The National Income under this method is computed as follows:

GDP_MP = C + I + G + (X − M)

Where,

C - Consumption expenditure of households

I - Investment expenditure by business houses

G - Government expenditure

X - Exports

M - Imports

Therefore, under the Expenditure Method, we can find the National Income (NNP_FC) by following the given steps:

1. Gross Domestic Product at Market Price (GDP_MP) = C + I + G + (X − M)
2. Net National Product at Factor Cost (NNP_FC) = GDP_MP − depreciation + NFIA − Net Indirect Taxes (NIT)