If Q 1, Q2...qn are used to represent the output of various final products, while P 1, P2...pn are used to represent the prices of various final products, then the formula for accounting GDP by expenditure method is:
q 1p 1+q2p 2+……QnPn = GDP
In real life, the final uses of products and services are mainly household consumption, enterprise investment, government purchase and export. Therefore, using the expenditure method to calculate GDP is to calculate the sum of the expenditures of residents, enterprises, government procurement and net exports in a certain period of time in a country or region.
1. Residents' consumption (represented by the letter C) includes expenditures on durable consumer goods such as refrigerators, color TVs, washing machines and automobiles, expenditures on non-durable consumer goods such as clothing and food, and expenditures on services such as medical care, tourism and haircuts. The expense of building a house is not consumption.
2. Enterprise investment (indicated by the letter I) refers to the expenditure of increasing or updating capital assets (including factory buildings, machinery and equipment, houses and inventories). Investment includes fixed assets investment and inventory investment. Investment in fixed assets refers to the investment in building new factories, purchasing new equipment and building new houses. Why does housing belong to investment rather than consumption? Because houses, like other fixed assets, are used for a long time and consume slowly. Inventory investment is the increase or decrease of inventory (or inventory) held by enterprises. If the national enterprise inventory is 200 billion dollars at the beginning of the year and 220 billion dollars at the end of the year, then the inventory investment is 20 billion dollars. Inventory investment may be positive or negative, because the inventory value at the end of the year may be greater or less than the inventory at the beginning of the year. Enterprise inventory is regarded as an investment because it can generate income. From the perspective of national economic statistics, the products produced but not sold can only be used as inventory investment of enterprises, so that the GDP from the perspective of production is consistent with the GDP from the perspective of expenditure.
The investment included in GDP refers to the total investment, that is, the sum of replacement investment and net investment, and replacement investment is depreciation.
The division between investment and consumption is not absolute, and the specific classification depends on the provisions in actual statistics.
3. Government procurement (denoted by the letter G) refers to the expenditure of governments at all levels on purchasing goods and services, including the expenditure of the government on purchasing arms, military and police services, office supplies and office facilities of government agencies, holding public projects such as roads, and opening schools. The wages paid by the government to government employees are also purchased by the government. Government purchase is a substantial expenditure, which is manifested in the two-way flow of goods, services and money, directly forming social demand and becoming an integral part of GDP. Government purchase is only a part of government expenditure, and another part of government expenditure, such as government transfer payment and interest on public debt, is not included in GDP. Government transfer payment is the expenditure that the government does not pay for the goods and services produced in that year, including the expenditure that the government uses for social welfare, social insurance, unemployment relief, poverty subsidies, old-age security, medical and health care, agricultural subsidies and so on. Government transfer payment means that the government transfers and redistributes income among different members of society through its functions, and transfers the income of some people to other people. Its essence is the redistribution of wealth. When there is a government transfer payment, that is, when the government pays these fees, it does not get any goods and services accordingly. Government transfer payment is a monetary expenditure, and the total income of the whole society has not changed. Therefore, government transfer payments are not included in GDP.
4. Net export (represented by the letter X-M, X stands for export and M stands for import) refers to the difference between import and export. Imports should be deducted from the country's total purchases, exports should be added to the country's total purchases, and net exports should be included in the total expenditure. Note: The net export may be positive or negative.
The above four items add up to the formula for calculating GDP by expenditure method: GDP=C+I+G+(X-M).
Through the GDP calculated by the expenditure method, the consumption rate and investment rate can be calculated. The so-called consumption rate is the ratio of final consumption to GDP, and the so-called investment rate is the ratio of total capital formation to GDP.