is to be included. . . .
The Expenditure Method (Outlay method) Under this method, the total expenditure incurred by the society in a particular year is added together. To calculate the expenditure of a society, it includes personal consumption expenditure, net domestic investment, government expenditure on consumption as well as capital goods and net exports. Symbolically, GNP = C + I + G + (X-M) C - Private consumption expenditure I - Private Investment Expenditure G - Government expenditure X-M = Net exports Precautions . Second hand goods: The expenditure made on second hand goods should not be included.
. Purchase of shares and bonds : Expenditures on purchase of old shares and bonds in the secondary market should not be included. . Transfer payments : Expenditures incurred by the government like old age pension should not be included.
. Expenditure on intermediate goods : Expenditure on seeds and fertilizers by farmers, cotton and yarn by textile industries are not to be included to avoid double counting. That is, only expenditure on final products are to be included. - - National Income Factor cost (FC) There are a number of inputs that are included into a production process when producing goods and services.
These inputs are commonly known as factors of production which include land, labour, capital and entrepreneurship. Producers of goods and services incur a cost for using these factors of production. These costs are ultimately added onto the price of the product. The factor cost refer to the cost of production that is incurred by a firm when producing goods and services.
Examples of such production costs include the cost of renting machines, purchasing machinery and land, paying salaries and wages, cost of obtaining capital, and the profit margins that are added by the entrepreneur. The factor cost does not include the taxes that are paid to the government since taxes are not directly involved in the production process and, therefore, are not part of the direct production cost. However, subsidies received are included in the factor cost as subsidies are direct inputs into the production.