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| 1. |
Discuss the various steps of expenditure method for calculating national income. |
| Answer» Solution :The steps involved in calculating National Income by Expenditure METHOD are:Step 1: Identify the Economic Units incurring Final Expenditure: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 | |