The formular used by the Expenditure approach to calculate National income is

1. Analyze the question You are asked for the correct formula for national income (GDP) using the expenditure approach.

2. Explain the concept The expenditure approach adds up all spending on final goods and services in the economy. There are four components:

• C = Household consumption expenditure
• I = Investment expenditure by firms
• G = Government expenditure
• X − M = Net exports (exports minus imports)

Exports (X) are added because foreigners spend on our goods. Imports (M) are subtracted because that spending goes to foreign producers.

3. Solution Combine the components:

Y = C + I + G + X − M

Check each option:

• A: Y = C + I + X − M − G. Government spending is subtracted, which is wrong.
• B: Y = C + I + G + X − M. All components have the correct signs, so this is correct.
• C: Y = C + X − M − I + G. Investment is subtracted, which is wrong.
• D: Y = C − I + X − M + G. Investment is subtracted, which is wrong.

4. Answer

5. Exam tip Remember "CIGAR"-style: C + I + G + (X − M). Only imports are subtracted. If you see any option that subtracts C, I, or G, eliminate it immediately.