CBSE Class 12-commerce Answered

Steps involved in calculating National Income by expenditure method are:

1) Identify the economic units incurring final expenditure

These are grouped under four heads:

a) Household sector

b) Government sector

c) Producing sector

d) Rest of the world sector

2) Classification of final expenditure

Final expenditure incurred by the above economic units are estimated under the following heads:

• Private Final Consumption Expenditure (PFCE)
• Government Final Consumption Expenditure (GFCE)
• Gross Domestic Capital Formation (GDCP)
• Net Export (X-M)

 The sum total of final expenditure gives us GDP_MP

Thus GDP_MP= PFCE+GFCE+GDCP+(X-M)

3) Calculate NDP_FC

NDP_FC=GDP_MP-Depreciation-Net Indirect Taxes.

4) Estimate NFIA to arrive at National Income (NNPFC)

In the final step NFIA (Net Factor Income from Abroad) is added to domestic income to arrive at National Income.

 National Income (NNP_FC) = NDP_FC+NFIA