Measurement of National Income — Part 2: Expenditure Method, Precautions and Difficulties: visual lesson, ISC Class 12 Economics

Lesson

The Expenditure Method and Its Precautions

Part 2 — measuring national income by final spending, and the care each method needs.

In this lesson you will

Calculate GDP at market price and national income by the expenditure method
State and explain the precautions of each method, with the treatment of tricky items
Explain the difficulties of measuring national income in India

Part 2 at a glance

Concept

GDP at market price = private and government final consumption + gross domestic capital formation + net exports.

Table of the four components of final expenditure: private and government final consumption, gross domestic capital formation and net exports, with who spends and an example of each
Component of final expenditure	Who spends	Example
Private final consumption expenditure	Households and non-profit bodies serving them	A family buys a refrigerator
Government final consumption expenditure	Government, for services it provides	Salaries of government teachers
Gross domestic capital formation	Producers	A new kiln; a rise in unsold stock
Net exports	Rest of the world (exports − imports)	Exports of tea less imports of oil

Concept

Capital formation includes the change in stock; net exports can be negative.

Investment spending