Question

From the following data, calculate national income by expenditure method. (7mks)

Items (000)
1. Compensation of employees 1,200
2. Net factor income from - 20
3. Net indirect taxes 120
4. Profit 800
5. Private final consumption expenditure 2,000
6. Net domestic capital formation 770
7. Consumption of fixed capital 130
8. Rent 400
9. Interest 620
10. Mixed income of self-employed 700
11. Net exports - 30
12. Govt. final consumption expenditure 1,100
13. Operating surplus 1820
14. Employer’s contribution to social security Scheme 300

Answer 1

To calculate national income by expenditure method, we use the following formula:

National Income (NI) = Private Final Consumption Expenditure (PFCE) + Government Final Consumption Expenditure (GFCE) + Gross Domestic Fixed Capital Formation (GDFCF) + Net Exports (NX)

Where,

Gross Domestic Fixed Capital Formation (GDFCF) = Net Domestic Capital Formation + Consumption of Fixed Capital

Net Exports (NX) = Exports - Imports

So, putting the given values in the formula, we get:

Gross Domestic Fixed Capital Formation (GDFCF) = Net Domestic Capital Formation + Consumption of Fixed Capital

= 770 + 130

= 900

Net Exports (NX) = Exports - Imports

= -30

National Income (NI) = Private Final Consumption Expenditure (PFCE) + Government Final Consumption Expenditure (GFCE) + Gross Domestic Fixed Capital Formation (GDFCF) + Net Exports (NX)

= 2000 + 1100 + 900 - 30

= 3970

Therefore, the national income by expenditure method is 3970,000.