Can You Define National Expenditure?

By National Expenditure (NE) we mean expenditure on the national product, i.e. expenditure on final goods and services produced during the year. It should be noted that national expenditure is not always equal to actual expenditure made by all individuals in an economy during a year. National expenditure also includes national expenditure on final goods produced but not sold in the market. Suppose a farmer has produced some amount of crop which he offers for sale in the market. A part is sold to the consumers is an expenditure on final goods. Hence it is a part of national expenditure. But consider the unsold part of the crop which the farmer retains. It is an addition to the farmer's capital stock and, by definition, constitutes investment. But there is no money flow. The farmer does not purchase this part of the crop for his own use. There is no actual expenditure by the farmer to purchase this unsold stock. To deal with this situation we assume national expenditure by the farmer on the unsold part of the crop. It is an investment in the form of inventory accumulation. If we include not only actual expenditures on final products but also national expenditures on final products then it is obvious that national expenditure is equal to the value of the national product. Hence national expenditure is identically equal to the value of the national product which is again identically equal to national income.