The formular used by the Expenditure approach to calculate National income is
Answer Details
The expenditure approach is a common method used to calculate the national income, specifically the Gross Domestic Product (GDP) of a country. This approach sums up all expenditures or spending in the economy.
The correct formula for the expenditure approach is: Y = C + I + G + (X - M), where:
C stands for Consumption: This is the total value of all goods and services consumed by households within the economy. It includes expenditures on items such as food, clothing, housing, and other personal expenses.
I stands for Investment: This includes spending on capital goods that will be used to produce other goods and services in the future, such as machinery, buildings, and inventory.
G stands for Government Spending: This is the total expenditure by the government on goods and services, including public sector salaries, defense, education, and infrastructure projects.
(X - M) stands for Net Exports: This is calculated as total exports (X) minus total imports (M). Exports are goods and services sold to other countries, while imports are those bought from other countries. By subtracting imports from exports, we determine the net trade effect on the economy.
Putting it all together, this formula helps to calculate the total economic activity within a country by summing up consumption, investment, government spending, and net exports, giving a comprehensive picture of the national income.