Question

State the various components of the Expenditure Method that are used to calculate National Income.

Components of Expenditure Method:

(i) Private Final Consumption Expenditure

(ii) Government Final Consumption Expenditure

(iii) Investment Expenditure

(iv) Net Exports (X - M).

Answer 1

(i) Private Final Consumption Expenditure (C): It refers to expenditure on final goods and services by the individuals, households and Non-profit Institution Serving Society.

(ii) Government Final Consumption Expenditure (G): It refers to expenditure on final goods and services by the government, like expenditure on the purchase of goods for consumption by the defence personnel.

(iii) Investment Expenditure (I): It refers to expenditure on the purchase of final goods by the producers.

(iv) Net Exports (X - M): It is the difference between exports and import during an accounting year.