Describe the expenditure method of calculating national income along with the precautions to be taken.

Under this approach, the economy is divided into four sectors: household, business, government, and foreign sector.

GDP (Gross Domestic Product) = C+Ig+G+NX

where

C (consumption)- this is the expenditure of the household sector. It includes household spending on durable goods, non-durable goods, and services.

Ig (gross private domestic investment)- this component includes purchase of new capital goods, changes in business inventories, purchase of new residential housing, and consumption of fixed capital (depreciation)

G (government spending)- this is the expenditure made by the government such as education and defense expenses. Transfer payments made by the government are not included in this component.

transfer payments- these payments are made by the government for which it does not receive any good or service in return. example- subsidy

NX (net exports)- it is the difference between exports of goods and services and imports of goods and services.

Now, after calculating GDP,

NDP (Net Domestic Product)- GDP- Depreciation

NI (National Income)= NDP- Net foreign income earned in the economy- Indirect Taxes