Question

5 Explain the main steps
involved
in measuring
National Income
through expenditure
Method​

Answer 1

Hey Mate !

The steps involved in calculating National Income by Expenditure Method are:

Step 1: Identify the Economic Units incurring Final Expenditure:

All the economic units, which incur final expenditure within the domestic territory, are classified under 4 groups: lawyer (i) Household sector; (ii) Government sector; (iii) Producing sector; (iv) Rest of the world sector.

Step 2: Classification of Final Expenditure:

Final expenditures incurred by the above mentioned economic units are estimated and classified under the following heads:

1. Private Final Consumption Expenditure (PFCE)

2. Government Final Consumption Expenditure (GFCE)

3.Gross Domestic Capital Formation (GDCF)

4. Net .Exports (X-M).

The sum total of four components of final expenditure gives Gross Domestic Product at Market Price (GDPMP), i.e. GDPMP = PFCE + GFCE + GDCF + (X-M)

Step 3: Calculate Domestic Income (NDPFC)

By subtracting the amount of depreciation and net indirect taxes from GDPMP, we get domestic income, i.e. NDPFC = GDPMP – Depreciation – Net Indirect Taxes.

Step 4: Estimate net factor income from abroad (NFIA) to arrive at National Income:

In the final step, NFIA is added to domestic income to arrive at National Income.

National Income (NNPFC) = NDPFC+ NFIA

Explanation:

Hope it helps u my frd

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