Income Expenditure Approach Formula

Spending on purchase of durable goods such as cars computers etc non durable goods such as bread milk etc and on purchase of services such health entertainment.

Income expenditure approach formula. The formula for the calculation of the gross domestic product gdp of the country using the expenditure approach is as follows. Calculating gdp under expenditure approach requires adding consumer spending investments on capital goods by businesses government expenditure on various sectors including public infrastructure defence industry education healthcare etc and net exports. Now while calculating national income using the expenditure approach you need to also deduct depreciation on capital assets and indirect taxes. First let us talk about first formula.

Expenditure approach is a commonly used method for the calculation of gdp. The formula for calculating the gdp using the expenditure method is. Under expenditure method national income is calculated first by adding up all the items of final consumption expenditure and final investment expenditure within the domestic economy the resulting total is called gdp at mr by subtracting depreciation and net indirect taxes from gdp at mp and adding to its net factor income from abroad we get nnp at fc or national income. The gdp under the expenditures approach is calculated using the following formula.

Gdp c i g x m c stands for personal consumption expenditures and it represents the spending by individuals on goods and services for personal use. Using the expenditure approach national income can be represented as follows. The formula is gdp c i g x m. For some the formula is total national income sale taxes depreciation net foreign factor income and for some the formula is net domestic income indirect taxes depreciation subsidy.

The expenses incurred for the production of any good that is used for self consumption are considered in the national income calculation. Calculation of gdp using the expenditure method. Gdp formula open closed economy income expenditure approach. The expenditure approach begins with the money spent on goods and services.

The income approach is another way to calculate gdp. Gdp c i g nx thus the gross domestic product gdp of the country using the expenditure approach comes to 505 000. Conversely the income approach starts with the income earned from the production of goods and services wages rents. National income c household consumption g government expenditure i investment expense nx net exports.

2 income approach the income approach is a way for calculation of gdp by total income generated by goods and services.