2. Government’s expenditure on goods and services to satisfy collective wants. It is denoted by ‘G’.

3. The expenditure by productive enterprises on capital goods and stocks. This is called gross domestic capital formation. It is denoted by ‘I’.

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4. The expenditure made by foreigners on goods and services of a country exported to other countries. These are exports and denoted by ‘X’. Similarly, expenditure by people, enterprises, government of a country on goods and services from other countries. It is denoted by ‘M’ (imports). So net export is calculated that is exports-imports or (X – M).

Let us add up the above four types of expenditure to get final expenditure on grass domestic product at market prices (GDPMP).

Precautions:

Estimating national income through expenditure method, the following precautions are to be taken care of.

1. Second-hand goods should not be included for the estimation of national income.

2. Purchase of old shares and bonds from other people should not be included while calculating GDP.

3. Expenditure on transfer payments (like old age pension, unemployment benefits etc.) should not be included in the calculation of GDP.

4. Expenditure on intermediate goods should be excluded from the calculation of GDP.

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