Expenditure Method

What is the 'Expenditure Method'

The expenditure method is a method for calculating gross domestic product (GDP) that totals consumption, investment, government spending and net exports. Although GDP can be calculated through other methods, the expenditure method is the most common. The formula for its calculation is often expressed as.

GDP = C + G + I + NX

C = Consumption

G = Government Spending

I = Investment

NX = Net Exports

This calculation gives us nominal GDP, which must then be adjusted for inflation to give us the real GDP.

BREAKING DOWN 'Expenditure Method'

GDP is supposed to measure a country's standard of living and economic health. Critics such as Nobel Prize-winning economist Joseph Stiglitz caution that GDP should not be taken as an all-encompassing indicator of a society's well being, since it ignores important factors that make people happy. For example, GDP does not consider work-life balance or the quality of interpersonal relationships.

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