The measurement of national income accounts by using expenditure method and monetray management or currency management are closely related to each other. The spending method records all the spending made by economic sectors on domestically produced final goods and services during a particular time. The article tries to explain the measurement of GDP by expenditure method and its effect on monetary or currency management.
Monetray management or currency management is a systematic process of managing money or currency in the economy according to its need. This process involves an act of planning and forecasting currency with its circulation. Thus, the management of currency or monetary management involves the following major functions.
- Issue of currency notes and coins,
- Manage the adequate level of currency to ensure the smooth functioning of the payment system in the economy,
- Maintain a record of currency in circulation,
- Verify bank notes as fit and unfit for circulation and provide exchange facility;
- Authentication of currency,
- Destruction of currency verified as unfit for circulation,
Thus, monetary management is the process of managing the proper circulation of currency and thereby ensuring the supply of money according to its demand in the economy.
The expenditure method of measurement of national income considers total expenditure made on domestically produced final goods and services by consumers, business firms, and the government sector. The expenditure made by different sectors shows the preference to hold cash which is the major part of the demand for money in the economy. The measurement of national income by applying the expenditure method thus gives an idea to the monetary management authority about the demand for money, the status of an investment portfolio, the direction of disbursement of monetary resources, effects on the circulation of money in the form of leakages (import), and injection (export). All information plays a vital role in the monetary management function of the concerned authority. The relationship between the measurement of national accounts through expenditure method and monetray management is represented with help of the following points.
- The expenditure method helps to show the status and direction of spending by all economic units of the domestic economy
- The spending method helps to trace the spending record of a nation that may affect the long-term assets and portfolio of individuals, institutions, as well as government
- The expenditure method helps to know about the flow of investment, the status of resources in circulation, and the uses of available resources
- This method also helps to formulate proper budgetary policy by tracing the information about the consumption patterns of households, and the investment capacity of the business sector and accordingly designing taxation policy, and monetary management policies.
- Finally, all such associations help monetray authority to manage the circulation of money as per need and circumstance of the macroeconomy of the nation.
Therefore, there is a close relationship between the measurement of GDP by expenditure method and its effect on monetary or currency management because the expenditure method gives information about how financial resources are allocated, the status of a long-term portfolio, the nature, and status of assets, money circulation, and effects on circulation. The expenditure method provides the information required for forecasting the demand for currency and thereby ensuring the appropriate availability of currency in the economy.