Abstract

There are four types of expenditures: consumption, investment, government purchases and net exports. Each of these expenditure types represent the market value of goods and services. The expenditure approach to calculating gross domestic product for the nation, or GDP, uses these four expenditure categories as a measure of economic growth and activity. As these four expenditures go up, the economy expands and businesses of all sizes do better; as they go down, the economy contracts and businesses do worse (Amadeo, 2015). The total payment made by households on consumption goods and services is called consumption expenditures (C). Firms, however, do not sell all of their output to households. Some of what they produce is purchased by other firms. The purchase of new plants, equipment, buildings, new homes, and additions to inventories is called investment expenditures (I). In the national income accounts, buying a stock, or an antique car, or precious gems, or a piece of art is not investment. Government purchases of finished products of businesses and all direct purchases of resources are called government expenditures (G). The expenditure by the rest of the world on goods and services produced by domestic firms (exports) minus the US expenditures on goods and services produced by the rest of the world (imports) is called net exports (NX).

Keywords: consumption, government, expenditures

The Expenditure Approach

The expenditure approach is to add up the market value of all domestic expenditures made on final goods and services in a single year. Final goods and services are goods and services that have been purchased for final use or goods and services that will not be resold or used in production within the year. Intermediate goods and services, which are used in the production of final goods and services, are not included in the