(a) "In the estimation of Gross Domestic Product (GDP) using expenditure method, focus lies only on expenditure by the residents of the country." Do you agree with the given statement ? Give valid reasons for your answer. (b) "National income exceeds domestic income only when exports are greater than imports." Comment.

Question

Accepted Answer

(a) I do not agree with the statement. The Expenditure Method focuses on expenditure by ALL sectors, not just residents. It includes: Private Final Consumption Expenditure (households), Government Final Consumption Expenditure (government), Gross Domestic Capital Formation (firms), and Net Exports (foreign sector). Net Exports captures foreign expenditure on domestic products (exports) which is added.

(b) National Income (NNP_FC) = Domestic Income (NDP_FC) + NFIA. National Income exceeds Domestic Income only when NFIA is positive, which means factor income received from abroad exceeds factor income paid abroad. It does not depend on whether exports exceed imports. Exports and imports are part of Net Exports (a domestic concept), while NFIA is a national concept involving factor incomes.