According to this method the money value of all expenditure on final product will add up to GNP from which capital consumption and net indirect tax (indirect tax-subsidy) are deducted.
NI = GNP - Capital Consumption - Indirect Tax + Subsidy
GNP = C + I + G + NX
Net Income form abroad=0
We now explain four categories of expenditure:
(1) Consumption Expenditure (C):
It includes expenditure by household (a) durable goods such as, automobile, refrigerators etc, (b) non-durable goods such as: food, shirts etc and (c) services such as doctors, education etc.
(2) Gross Investment:
It includes (a) all final purchase of machinery, equipment, and tools by business enterprise in given time period-change in capital stock (b) all current construction (c) changes in inventories: changes in stocks of finished goods and goods in process as well as changes in the raw material that businesses keep on hand. Inventories can be negative, positive or zero
(3) Government Expenditure (G):
This includes all governmental spending (federal, state and local) on the finished product of business and all direct purchases of resources such as labour etc, it excludes all govt. transfer payments, because it doesn't reflect any current production.
(4) Net Exports (NX) = Export - Import :
This includes the difference between the imports and exports, called net exports. it is the component of the total demand for our goods. it can be negative positive or zero.