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We know that there are 4 main sectors of economy

  • Household
  • Firm
  • Government
  • External Sector

Different Sectors of Economy - Teachoo.JPG

All these sectors incur various types of expenditure

  • Household

They incur Expenditure on Purchasing different goods and services for use. Example Food, Clothing, Car etc

This is called Private Final Consumption Expenditure

However, if expenditure is incurred on Purchasing house, it is called Gross Residential Construction Expenditure

Different Expenditure by Households - Teachoo.JPG

  • Firm

They incur expenses on

Purchasing different fixed assets-

Example-Machinery, Building etc

This is called Gross Business Fixed Investment

Purchasing goods for Sale

In this case, we calculate difference in Stock (Closing Stock-Opening Stock)

This is called Inventory Investment

Different Expenditure by Firms - Teachoo.JPG

  • Government

It incurs 2 types of expenditure

Expenditure on Administrative Services

Example Salary of different govt employees working in govt departments, police et

This is called Government Final Consumption Expenditure

 

Expenditure on Infrastructure

Example-Expenditure on construction of flyover, bridges etc

This is called Gross Public Investment

Different Expenditure by Government - Teachoo.JPG

  • External Sector

We know that

It is portion of country's economy which interacts with economies of other countries

Example

Sale of Goods to Other countries (Export)

Purchase of goods from other countries (Import)

In this case, we calculate Net Exports (Export -Import)

What are Net Exports - Teachoo.JPG

Summary of Different Expenditures - Teachoo.JPG

What is Gross Domestic Capital Formation

It is the sum total of

Gross Residential Construction Expenditure

Gross Business Fixed Investment

Inventory Investment

Gross Public investment

 

It is also called Gross Investment

What is Gross Domestic Capital Formation - Teachoo.JPG

As per above table, we can say that

There are 4 main types of Expenditure

  • Private Final Consumption Expenditure
  • Gross Domestic Capital Formation
  • Government Final Consumption Expenditure
  • Exports-Imports

All these are called Components of Final Expenditure

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Transcript

Different Sectors of Economy GOVERNMENT (Central Govt, State Govt and Govt Companies) HOUSEHOLDS (Customers. Employees etc) FIRMS (Manufacturers, Traders Service Providers (Manufacturers, Traders Service Providers EXTERNAL SECTOR Import, Export and Foreign Investment Different Expenditure by Households School Fees Internet Food Clothing Car House These are Services These are Goods These are Durable Goods This is Private Final Consumption Expenditure This is Gross Residential Construction Expenditure Different Expenditure by Firms On Purchase of Goods On Purchase of Fixed Assets Example Example Purchase of Mango by Jam Factory Purchase of Machine by Jam Factory This Purchase is For Sale This Purchase is For Use It is called Inventory Investment It is called Gross Business Fixed Investment Different Expenditure by Government On Paying Salaries to Govt Officers and Office Expenses On Preparing Roads, Bridges, flyovers This is Expenditure on Administration This is Expenditure on Infrastructure It is called Government Final Consumption Expenditure It is called Gross Public Investment What are Net Exports Export Import India Foreign Country Foreign Country India It means Selling goods from India to Foreign Country It means Purchasing from Foreign Country into India Difference between these two is called Net Exports Exports Less Imports = Net Exports Summary of Different Expenditures Summary of Different Sectors and their Expenditure Sector Household Firm Government External Sector Expenditure Private Final Consumption Expenditure Gross Residential Construction Expenditure Gross Business Fixed Investment Inventory Investment Gross Public investment Government Final Consumption Expenditure Exports-Imports Example (Exp on Purchasing different goods and service) Expenditure on House Purchasing Fixed Assets Purchasing of Stock Exp on Salary and other Administrative Service Expenditure on infrastructure Sale and Purchase from Other Countries What is Gross Domestic Capital Formation Sector Household Firm Government External Sector Private Final Consumption Expenditure Gross Residential Construction Expenditure Gross Business Fixed Investment Inventory Investment Gross Public investment Government Final Consumption Expenditure Exports-Imports Total of only these 4 is called Gross Domestic Capital Formation or Gross Investment

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Davneet Singh

Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.