How to use the Expenditure Approach formula to solve GDE/GDP: Expenditure Approach

The formula for calculating GDP using the expenditure approach is:

Note the following

1. Unless otherwise stated, the expenditure approach

begins with the market price (that is the figures given

are already in the market price state)

2. Total domestic expenditure=C+I+G. 

3. Total final expenditure=C+I+G + X or TDE + X

4. Gross domestic expenditure C+I+G+X- M or

TFE-M

5. When dealing with the expenditure approach the 

income items and output items must be ignored Only

expenditure items must be used to arrive at the GDP

6. Value of intermediate goods is not included in the

estimation of the national income when using the

expenditure approach

7. TDE is Total Domestic Expenditure

8.TFE is Total Final Expenditure

9.GDE is Gross Domestic Expenditure .

FORMULAS.

1.Total final expenditure=C+I+G + X or TDE + X

2.Total domestic expenditure=C+I+G

3.GDP or GDE = C + I + G + NX  OR C+I+G+X- M 

Where:

C = Consumption Expenditures

I = Investment Expenditures

G = Government Expenditures

NX = Net Exports (exports(X) - imports(M))

Step 1: Determine Consumption Expenditures (C)

Consumption expenditures include all goods and services purchased by households. This can include food, clothing, housing, and entertainment. To calculate C, add up all the money spent by households on these items throughout the year.

Step 2: Determine Investment Expenditures (I)

Investment expenditures include all of the money spent on goods and services that are used to produce other goods and services. This can include spending on new factories, machinery, and equipment, as well as spending on research and development. To calculate I, add up all the investments made by businesses in these areas throughout the year.

Step 3: Determine Government Expenditures (G)

Government expenditures include all of the money spent by the government on goods and services. This can include spending on infrastructure, defense, education, and healthcare. To calculate G, add up all the spending by the government in these areas throughout the year.

Step 4: Determine Net Exports (NX)

Net exports are calculated by subtracting imports from exports (X-M). If a country exports more goods and services than it imports : that country is called Net Exporter and  it has a trade surplus, and net exports will be positive. If a country imports more goods and services than it exports: that country is called Net Importer and it has a trade deficit, and net exports will be negative.

 To calculate NX (Net Export), subtract the value of imports from the value of exports. EXPORT -IMPORT

Step 5: Calculate GDP OR GDE

Finally, to calculate GDP using the expenditure approach, add up all the expenditures: consumption (C), investment (I), government (G), and net exports (NX). This gives you the total value of all the goods and services produced in the economy during the specified time period.

GDP or GDE= C + I + G + NX or C+I+G+X- M