Using total expenditure for calculating national income, Managerial Economics

Using Total Expenditure for Calculating National Income

The expenditure approach centres on the components of final demand which generate production.  It thus measures GDP as the total sum of expenditure on final goods and services produced in an economy.  It includes all consumers' expenditure on goods and services, except for the purchase of new houses which is included in gross fixed capital formulation.  Secondly we included all general government final consumption.  This includes all current expenditure by central and local government on goods and services, including wages and salaries of government employees.  To these we add gross fixed capital formation or expenditure on fixed assets (buildings, machinery, vehicles etc) either for replacing or adding to the stock of existing fixed assets.  This is the major part of the investment which takes place in the economy.  In addition we add the value of physical increases in the stocks, or inventories, during the course of the year.  The total of all this gives us Total domestic expenditure (TDE).  We then add expenditure on exports to the TDE and arrive at a measure known as Total Final Expenditure.  It is so called because it represents the total of all spending on final goods.  However, much of the final expenditure is on imported goods and we therefore subtract spending on imports

Having done this we arrive at a measure known as gross domestic product at market prices.  To gross domestic product at market price we subtract the taxes on expenditure levied by the government and add on the amount of subsidy.  When this has been done we arrive at a figure known as Gross Domestic Product at factor cost.  National Income however is affected by rent, profit interest and dividends paid to, or received from, overseas.  This is added to GDP as net property income from abroad.  This figure may be either positive or negative.  When this has been taken into account we arrive at the gross national product at factor cost.  As production takes place, the capital stock of a country wears out.  Part of the gross fixed capital formation is therefore, to replace worn out capital and is referred to as Capital Consumption.  When this has been subtracted we arrive at a figure known as the net national product.  Thus, summarising the above, we can say:

Y  =  C + I + G + (X - M)

Posted Date: 11/28/2012 5:53:26 AM | Location : United States

Related Discussions:- Using total expenditure for calculating national income, Assignment Help, Ask Question on Using total expenditure for calculating national income, Get Answer, Expert's Help, Using total expenditure for calculating national income Discussions

Write discussion on Using total expenditure for calculating national income
Your posts are moderated
Related Questions
Question 1: Explain the central theme of Scientific Management. Do you think that the scientific management enhances productivity in the organization? Give your arguments.

Q. Optimal Input Combination for Maximisation of Output? Equilibrium conditions of the firm are identical to the above situation which is, iso-cost line must be tangent to the

Supply-side policies Supply-side policies are intended to increase the economy's potential rate of output  by increasing the supply of factor inputs, such as labour inputs and

Using Factor Incomes for Calculating National Income     A second method is to sum up all the incomes to individuals in the form of wages, rents, interests and profits t

construct a decision tree for the baked potatoes outlet using sales per day, number of days that quantity is sold together with selling prices per unit and average costs

Causes of Inflation   At present three main explanations are put forward: cost-push, demand-pull, and monetary. Cost-push inflation occurs when he increasing costs of prod

It indicates the amount of output by that long run output of the firm under monopolistic competition falls short of the Ideal output. This is regarded as wastage in monopolistic co

Explain about the equilibrium in the labor market. Equilibrium into the Labor Market: All of firm will hire labor up to the point at that the value of the marginal product o

Q. What is Internal Diseconomies of Scale? Internal economies of scale exist only up to a certain size of the plant. Size of plant is called the optimum plant size since with t