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consumption for the individual i is c, aigregate consumption will be . In general, if we are taking sum of a quantity x over individuals 1 to n, i it will be denoted by . 2.2.2 Expenditure Method An alternative way to calculate the GDP is by looking at the demand side of the products. This method is r eferred to as the expenditure method. In the farmer- baker example that we have described before, the aggregate value of the output in the economy by expenditure method will be calculated in the following way. In this method we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes. The Rs 50 worth of wheat which the bakers buy from the farmers counts as intermediate goods, hence it does not fall under the category of final expenditure. Therefore the aggregate value of output of the economy is Rs 200 (final expenditure received by the baker) + Rs 50 (final expenditure received by the farmer) = Rs 250 per year. Firm i can make the final expenditure on the following accounts (a) the final consumption expenditure on the goods and services produced by the firm. We shall denote this by C. We may note that mostly it is the households which i undertake consumption expenditure. There may be exceptions when the firms buy consumables to treat their guests or for their employees (b) the final investment expenditure, I , incurred by other firms on the capital goods produced i by firm i. Observe that unlike the expenditure on intermediate goods which is not included in the calculation of GDP, expenditure on investments is included. 21 The reason is that investment goods remain with the firm, whereas intermediate N t goods are consumed in the process of production (c) the expenditure that the n government makes on the final goods and services produced by firm i. We shall l denote this by G .iWe may point out that the final expenditure incurred by the n m government includes both the consumption and investment expenditure (d) the e export revenues that firm i earns by selling its goods and services abroad. This c will be denoted by X .i u t Thus the sum total of the revenues that the firm i earns is given by g RV i Sum total of final consumption, investment, government and exports expenditures received by the firm i ≡ Ci+ Ii+ Gi+ X i If there are N firms then summing over N firms we get N ∑ i =1 i ≡ Sum total of final consumption, investment, government and exports expenditures received by all the firms in the economy ≡ N C + N I + N G + N X (2.3) ∑ i =1i ∑ i =1 ∑ i =1i ∑ i =1 i Let C be the aggregate final consumption expenditure of the entire economy. Notice that a part of C is spent on imports of consumption goods C Reprint 2026-27