We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is an Expenditure Method?

Jim B.
By
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

The expenditure method refers to the method of calculating a nation’s Gross Domestic Product, or GDP, by adding up all of the money spent by the country’s citizens and government. This is in contrast to the income method, which reverses the process somewhat and totals all earnings. Using the expenditure method requires adding up all consumer spending, governmental spending, capital investments, and net exports amassed by the country in the period of time being studied. Once this is done, adjustments can be made for inflation to calculate a country’s real GDP.

One of the main measurements designed to show a country’s economic growth, or lack thereof, is the Gross Domestic Product. It is meant to show the economic output of a country in a given time period. Comparing the GDP’s of several different countries is one way of showing how wealth is distributed among the nations of the world. In addition, studying the GDP of a specific country from year to year can effectively show economic trends within that country. Calculating the GDP of a country can be achieved by using the expenditure method.

An expenditure is an amount of money spent on something. It makes sense then that the expenditure method requires totaling up all spending. Such spending can come from the money spent by a household, also known as consumer spending. It also can come from the governing bodies in a country. Capital investments also go into this equation. The final part is the total of all net exports, which is calculated by subtracting the value of country’s imports from the value of its exports.

All these different expenditures yield a country’s Gross Domestic Product. Many economists prefer to factor inflation into the calculation of the GDP, arriving at a measurement called the real GDP. This is a more accurate representation of economic growth, since inflation affects the spending of citizens. If someone chooses to calculate the real GDP, it should be done only after the expenditure method has produced a preliminary total.

It is important to note that the expenditure method is not the only way to arrive at the Gross Domestic Product of a country. The income method, for example, totals all of the earnings from those companies and business that sell products to consumers, reversing the expenditure approach. Still, using expenditures requires a relatively easy bit of mathematics for the final calculation. This is the main reason that it is the most popular approach for calculating GDP.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Jim B.
By Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own successful blog. His passion led to a popular book series, which has gained the attention of fans worldwide. With a background in journalism, Beviglia brings his love for storytelling to his writing career where he engages readers with his unique insights.
Discussion Comments
Jim B.
Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.