Various methods of measuring national income. 3 Alternative Methods Used for Measuring National Income 2019-01-16

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IB Economics/Macroeconomics/Measuring National Income

various methods of measuring national income

Many of these self-supplied goods and services will be omitted from national income. All the income generated in production does not find its way into personal incomes. Therefore, for estimating Gross Domestic Product we have to include only expenditure on final goods and services. These Ls are countered by injections J which is comprised of: government spending G , investment expenditure I , and export expenditure X. Mixed income of the self-employed: In India as in other developing countries there is fifth category of factor income which is termed as mixed income of self-employed.

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National Income and Measurement

various methods of measuring national income

The salaries of government school teachers and policemen are taken as a meas­ure of the values of their outputs. Intermediate consumption which is the value of goods such as raw materials, fuels purchased from other firms 2. Income can be spent either on consumer goods or capital goods. It is both the figure of national income and the details regarding its various constituents that throw light on the functioning and performance of the economy. Output method or production method, industry of origin method measures the value added of each industry. Transfer payments :- The transfer payment like, pension, gift and scholarship may not be included in the national income because these are already calculated. In the reality an item called statistical discrepancy must often be used to average out the errors.


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IB Economics/Macroeconomics/Measuring National Income

various methods of measuring national income

Statistical information regarding agriculture and allied occupations, and household enterprises is not available. It is usual to denote national income with reference to prices of a particular year. Alfred Marshall, income method by A. Soviet system used not to count them at all as they are not producing anything tangible. Item number 6 is depreciation which is the reduction in the value of capital goods due to their contribution to the production process. Nevertheless, the retained earnings are recorded as a receipt of property income.

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3 Alternative Methods Used for Measuring National Income

various methods of measuring national income

Third, the baker makes the bread and sells it to the final consumer. The third step is to measure factor payments. Income from employment item no. Values are created in the productive area. They also acquaint us about the proportions of rent wages, interest and profits in the national income.


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National Income

various methods of measuring national income

The Product Output Method 2. As all the three methods are used to measure the lame physical output at three phases, namely production, distributions and expenditure, they will provide the same national income. Expenditure Method: Expenditure method arrives at national income by adding up all expenditures made on goods and services during a year. Households sell their productive services as factors of production to the firms and earn their income. Income of self-employed persons item number 2 includes both wages and return on capital owned by self-employed persons who are treated as firms in microeconomics.

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IB Economics/Macroeconomics/Measuring National Income

various methods of measuring national income

Sum of this factor income becomes national income under the Income method. Is national income a good measure of national welfare? These are money paid out for which nothing is given back to the government. What is the distinction between current and real terms of these entities? All of these approaches give the same value of the national income. They also include corporate profits and taxes on production and import. Income Method of Measure National Income Factors of production participate in economic activity to produce goods and services, the factors are compensated for the productive services rendered to the economy.

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National Income and Measurement

various methods of measuring national income

Value of production for self-consumption are be counted while measuring national income. Under the Income-Received method we may say that the national income is the sum total of income earned by owners of the various productive factors: wages of workers plus net interest on capital, plus net rent and royalties, plus corporate profits plus net income of unincorporated enterprise. Value of intermediate goods must not be counted while measuring value added because this will amount to double counting. Depreciation allowances :- The depreciation allowance should be also deducted. Net Factor Property Income from Abroad: It is also to be noted that some of the income derived from economic activity within the country will be paid to foreign owners of assets located in India, while income from Indian-owned assets abroad will be moving in the opposite direction. So to calculate the market price if we calculate the total expenditure, it will be equal to the national income.

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Essay on Explain 3 Ways of Measuring National Income of a Country

various methods of measuring national income

This is a serious problem in all market-based economies. Two adjustments must be made. Stock appreciation and discrepancies are taken into account too. Purchasing power : The purchasing power oi the people is also known with the help of the national income figures. These include the work of housewives.

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