The expenditure approach to measuring national income is to add up all expenditures made for final goods and services at current market prices by households, firms and government during a year. Total aggregate final expenditure on final output thus is the sum of four broad categories of expenditures:

i. Consumption

ii. investment

iii. government and

iv. Net export.

(i) Consumption expenditure Consumption expenditure is the largest component of national income. It includes expenditure on all goods and services produced and sold to the final consumer during the year.

(ii) Investment expenditure (I): Investment is the use of today's resources to expand tomorrow's production or consumption. investment expenditure is expenditure incurred on by business firms on (a) new plants, (b) adding to the stock of inventories and (c) on newly constructed houses.

(iii) Government expenditure (G): It is the second largest component of national income. It includes all government expenditure on currently produced goods and services but excludes transfer payments while computing national income. ,

(iv) Net exports (X - M): Net exports are defined as total exports minus total imports.

National income calculated from the expenditure side is the sum of final consumption expenditure, expenditure by business on plants, government spending and net exports.

NI = C + I +G + (X - M)