Final expenditure
Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"
Meaning
Final expenditure is spending on goods and services for end use. It excludes spending on intermediate goods, which are inputs used up to make other goods. The expenditure method of measuring GDP adds up final expenditure, which comes in four forms:
- consumption (C)
- investment (I)
- government spending (G)
- exports (X)
Imports (M) are then subtracted: GDP ≡ C + I + G + X − M. Leaving out intermediate purchases avoids double counting, which means counting the same input twice.
Example
A farmer grows wheat worth ₹250. Bakers buy ₹200 worth of it and bake bread that sells for ₹200. Households buy the other ₹50 of wheat for their own use. Final expenditure = ₹200 (bread) + ₹50 (wheat for final use) = ₹250. The ₹200 of wheat bought by bakers is intermediate, so it is left out, because its value is already inside the price of the bread.
Don't confuse with
- Intermediate purchases: the same good can be final or intermediate. Tea leaves bought for home use are final expenditure. The same tea leaves bought by a restaurant are an intermediate input.
Related concepts
- Expenditure method
- Open economy national income identity
- Private Final Consumption Expenditure
- Government Final Consumption Expenditure
- Gross Fixed Capital Formation
- Valuables
- Statistical discrepancy
- Income method
- Functional distribution of income