Gross Domestic Product - Determining GDP - Expenditure Approach

Expenditure Approach

" All expenditure incurred by individuals during 1 year . "

In economics, most things produced are produced for sale, and sold. Therefore, measuring the total expenditure of money used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. Note that if you knit yourself a sweater, it is production but does not get counted as GDP because it is never sold. Sweater-knitting is a small part of the economy, but if one counts some major activities such as child-rearing (generally unpaid) as production, GDP ceases to be an accurate indicator of production. Similarly, if there is a long term shift from non-market provision of services (for example cooking, cleaning, child rearing, do-it yourself repairs) to market provision of services, then this trend toward increased market provision of services may mask a dramatic decrease in actual domestic production, resulting in overly optimistic and inflated reported GDP. This is particularly a problem for economies which have shifted from production economies to service economies.

Read more about this topic:  Gross Domestic Product, Determining GDP

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Gross Domestic Product - Determining GDP - Expenditure Approach - Examples of GDP Component Variables
... However, when the consortium conducted its own expenditure on renovation, that expenditure would be included in GDP ... which would result in higher water prices (and probably higher hospital and medication expenditures) would be reflected as a higher GDP ...

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