Expenditure method estimates expenditure on domestic product, i.e expenditure on final goods and services produced within the economic territory of the country. It includes expenditure by residents and non- residents both. Exports, though purchased by non- residents, are produced within the economic territory, and therefore, a part of domestic product.
Domestic product can be greater than national product if factor income paid to the rest of the world is greater than the factor income received from the rest of the world
is i.e. when net-factor income received from abroad is negative.
The equilibrium level of income and output is that level at which planned saving and
planned investment are equal.
ss’ is the saving curve that shows planned saving at diffrent levels of income. I I’ shows fixed level of investment as it is assumed that investment is given and is constant, OQ is the equilibrium level of income and output as at this level, planned
saving and investment are equal
If planned expenditure is less than planned output inventories will increase. So output will be reduced till planned expenditure and planned output are equal.
For Blind candidates Same as above except diagram
Income method National Income = (iv+viii) + (iii + ix) + xi+xiii - x = (600+55)+(200+25)+20+130-30 =Rs. 1000 crores
(1) (1½) (½)
Expenditure Method National Income = vi+i+xii+xiv-v+ii-x = 800+100+110+70-60+10-30 = Rs. 1000 Crores
(1) (1½) (½)