The Exciting World of National Income Measures

What is the expenditure approach used for in calculating national income measures like GDP?

The expenditure approach is one of the approaches that are used to measure the Gross Domestic Product (GDP) and it is calculated by adding up all the expenditures made within a country during a given period of time.

Which of the following items will not be considered when applying the expenditure approach in calculating national income measures such as the GDP?

Local car manufacturers’ expenditures on imported car parts,tyres, etc
Household's expenditures on durables such as cars, washing machines, etc
Firms' payments for raw materials
Local government’s expenditures on office supplies.
Foreigners expenditures on domestic products.

Answer:

The only item that will not be considered when applying the expenditure approach in calculating national income measures such as the GDP is Local car manufacturers’ expenditures on imported car parts, tyres, etc.

The expenditures that are added together include household consumption, government spending, investments made by firms, and net exports. Hence, the only item that will not be considered when applying the expenditure approach in calculating national income measures such as the GDP is Local car manufacturers’ expenditures on imported car parts, tyres, etc.

Household expenditures on durables such as cars, washing machines, etc: This is an example of household consumption expenditure, which is included in the calculation of GDP.

Firms' payments for raw materials: This is an example of investment expenditure, which is included in the calculation of GDP.

Local government’s expenditures on office supplies: This is an example of government expenditure, which is included in the calculation of GDP.