Question

State the steps pertaining to the estimation of National Income by Expenditure Method.

Describe the steps involved in the estimation of national income by expenditure method.

Answer 1

Steps pertaining to the estimation of national income by the expenditure method:

• Step 1: Identify economic units operating within the country that incur production costs, including households, business firms, government, and foreign trade.
• Step 2: Categorise economic units by final expenditure categories: Private Final Consumption Expenditure (PFCE), Government Final Consumption Expenditure (GFCE), Gross Domestic Capital Formation (GDCF), and Net Exports (NX).
• Step 3: To calculate GDP_MP, add all final expenditures: GDP_MP = PFCE + GFCE + GDCF + (X − M).
• Step 4: To calculate Domestic Income (NDPFC), deduct depreciation and net indirect taxes from GDP_MP: NDP_FC = GDP_MP − Depreciation − Indirect Taxes.
• Step 5: Calculate Net Factor Income from Abroad (NFIA).
• Step 6: To calculate National Income (NNP_FC), add NFIA to Domestic Income: NNP_FC = NDP_FC + NFIA.