Gross Domestic Product is the total value of all goods and services produced within the borders of a country. The expenditure method is one system used to calculate this number by looking at the total amount spent domestically by citizens, businesses, and the government. This technique does not take into consideration who owns the means of production. It simply looks at the expenditures. Essentially, it states that all spending in the private sector adds up a country’s nominal GDP, This means it does not account for inflation. Thus, adjustments need to be made to this figure to arrive at the country’s real GDP. This is one of the most popular and widespread methods for calculating GDP because it is fairly simple.
In a nutshell :
- The expenditure method is the most common way of calculating a country's GDP.
- This method adds up consumer spending, investment, government expenditure, and net exports.
- Aggregate demand is equivalent to the expenditure equation for GDP in the long-run.
- The alternative method to calculate GDP is the income approach.