How GDP is calculated with Expenditure Approach

How GDP is calculated with Expenditure Approach

The third way to calculate the GDP [Gross Domestic Product] of a country or nation after Income and Production Approach the next approach is Expenditure Approach which is the simplest way to calculate because under this approach we calculate the sum of final uses of goods and services at market price which is consumed by the residence of Nation.

The Sum Total of Expenditure incurred by persons or total expenditures incurred to buy things is known as GDP by Expenditure Approach.

Formula to calculate GDP 

GDP(Y) = C+I+G+(X-M)

C = Consumption.
I = Investment.
G = Government Spending.
X = exports.
M = Imports.

  • 1. Consumption: it includes the expenditure of Household sectors on Final Goods and Service and no intermediate expenses are including in Consumption For Example Food/Ration, rent, medical Expenses, Gas Expenses, water Expenses, etc
  • 2. Investment:  it includes investment expenditure done by Businesses in Country like Buying new Building for work or Machine but does not include the exchange of existing assets, it also includes the expenditure of Household Sector like Buying New House which was not included under Consumption.
  • 3. Government Spending:  it includes expenditure done by the government on final goods like purchases of Weapons for Military, Salaries to Government/public Servants also Investment made by Government.
  • 4. Export: export means Selling Goods and Service to other Country which are Produced in our country.
  • 5. Import: imports are Buying Goods and Service from other countries hence it is deducted from Our GDP.

So after adding the first three things [C, I,&; GS] and then adding the gap Between Exports and Imports we will Get GDP with Expenditure Approach.

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