Expenditure Method – Calculation Process, Formula, Components, Precautions

# Expenditure Method – Calculation Process, Formula, Components, Precautions

## What is Expenditure Method?

Expenditure Method – Calculation Process: The expenditure method is a way of calculating the GDP of a country. It calculated by adding up all of the money that has been spent in the country during a given period of time. This includes money that has spent on goods and services, as well as money that has invested in the country.

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## How GDP Determined?

GDP determined by the total value of all goods and services produced in a country during a particular period of time. This value generally measured on an annual basis. It calculated by adding up the market values of all final goods and services produced in a country during a year.

## What is Expenditure Method Formula

The expenditure method a formula used to calculate the present value of a series of future cash flows. The formula is:

The present value can found by using the following formula:

Where:

• PV = present value
• FV = future value
• i = interest rate

## The Precautions Considered While Using Expenditure Method of National Income Calculation

There are a few precautions that need to considered while using the expenditure method of national income calculation. These include:

1. The expenditure approach only includes transactions that actually realized. This means that any unrealized transactions, such as those that planned but have not yet occurred, not included in the calculation.
2. The expenditure approach only includes final uses of goods and services. This means that the intermediate uses of goods and services, such as those that occur in the production process, not included in the calculation.
3. The expenditure approach only includes transactions that are paid for in cash or in kind. This means that any transactions that not paid for in cash or in kind not included in the calculation.
4. The expenditure approach only includes transactions that recorded in the national accounts. This means that any transactions that not recorded in the national accounts not included in the calculation.

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