Expenditure method is the alternative way to calculate the GDP by looking at the demand side of the products. Here, the aggregate value of the output in the economy by expenditure method will be calculated in the following way.

In this method, we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes. If the baker buys Rs. 50 worth of wheat from the farmers is considered as intermediate good and the final expenditure received by the baker is 200. Then the aggregate value of output of the economy is Rs. 200 + Rs. 50 = Rs. 250.

Let us assume that firm ‘i’ makes the final expenditure on the following accounts:

1. Final consumption expenditures on the goods and services by households denoted as C_i. 

2. Final investment expenditure incurred by the firms on capital goods denoted as I_i. 

3. The expenditure that the government makes on the final goods and services produced by the firm, denoted as G_i. 

4. The export revenues that firm i earns by selling its goods and services abroad denoted as X_i

Now the total final consumption, investment, government and export expenditures received by the firm i. Now GDP according to the expenditure method is expressed as follows:

GDP = ΣN_i-1RV_i = C + I + G + X-M

ΣN_i-1 RV_i is the sum of final consumption C, investment is I, government is G and exports is X expenditures (M is imports) received by all the firms in the economy.