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In microeconomics, the expenditure function gives the minimum amount of money an individual needs to spend to achieve some level of utility, given a utility function and the prices of the available goods. Formally, if there is a utility function that describes preferences over n commodities, the expenditure function
In the case where a good is produced and unsold, the standard accounting convention is that the producer has bought the good from themselves. Therefore, measuring the total expenditure used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP.
Thus the left side gives GDP by the income method, and the right side gives GDP by the expenditure method. The GDP is given on the bottom line of both sides of the report. GDP must have the same value on both sides of the account. This is because income and expenditure are defined in a way that forces them to be equal (see accounting identity ...
Measures of GDP typically exclude unpaid economic activity, most importantly domestic work such as childcare. This leads to distortions; for example, a paid nanny's income contributes to GDP, but an unpaid parent's time spent caring for children will not, even though they are both carrying out the same economic activity.
The other equation of disequilibrium, if S + T + M < I + G + X in the five sector model the levels of income, expenditure and output will greatly rise causing a boom in economic activity. As the households income increases there will be a higher opportunity to save therefore saving in the financial sector will increase, taxation for the higher ...
The equation is GDP = C + I + G + NX, where C is private consumption, I is private investment, G is government and NX is the net of exports minus imports. Increases in government spending create demand and economic expansion. However, government spending increases translates to tax increases or deficit spending. This creates a potential ...
Government spending or expenditure includes all government consumption, investment, and transfer payments. [1] [2] In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure.
Formally, the expenditure function is defined as follows. Suppose the consumer has a utility function u {\displaystyle u} defined on L {\displaystyle L} commodities. Then the consumer's expenditure function gives the amount of money required to buy a package of commodities at given prices p {\displaystyle p} that give utility of at least u ∗ ...