What does total expenditure in the economy measure?

Total expenditure in the economy primarily measures national income, which reflects the total amount of spending on goods and services produced within a nation over a specific period. This concept is captured in the expenditure approach to calculating GDP (Gross Domestic Product), where total expenditure is the sum of consumption, investment, government spending, and net exports (exports minus imports).

Understanding this measurement is critical because national income indicates the economic activity and health of an economy. When total expenditure increases, it typically suggests that economic growth is occurring, as more money is being spent on domestic production.

The other options—inflation rates, exchange rates, and investment levels—relate to the economy in different ways. While they can provide insights into specific aspects of economic performance, they do not encompass the broader measure that total expenditure represents in relation to national income. Inflation rates indicate how much prices have risen in the economy, exchange rates reflect the value of one currency relative to another, and investment levels pertain specifically to the spending on capital goods.