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Tuesday, 17 May 2011

Various methods of Measuring the National income

We can measure the national income by the following three methods
1. National income at market price.
2. National income at factor cost.
3. Expenditure method.
Now we can discuss them separately :

The output method or National income at market price :-
According to this method we add up the market value of all the goods and services produced in the country during a one year, it is called the national income. All the goods , either these are agricultural, industrial and minerals are included the out put . All the services which are rendered by the doctors, teachers and clerks are included in the total out put. So the value of these goods and services in terms of money is called national income.

Formula :- NI = GNP - DA - Indirect tax + Subsidies.

Precautions :

1. Danger of double counting :-
We can avoid from this danger by the following ways :
i) We should add up the value of those goods which have reached to the final shape and are available for consumption.
ii) Second method is that we should calculate only the added value of a particular commodity at every stage.

2. Unpaid services :-
The value of free services may not be included in the national income. For example one person teaches his own son, it is a free service.

3. Depreciation allowances :-
The depreciation allowance is to set a side from the total income.

4. Deduction of indirect taxes :-
The indirect taxes must be deducted from the prices of goods which have been levied by the government on the commodities produced for sale.

The Income Method or NI at Factor Cost :-
According to this method we sum up the remuneration received by the four factors of production (Land, labour, capital, organization) during a year. In other words.
National income = Rent + Wages + Interest + Profit

Precautions :-

1. Transfer payments :-
The transfer payment like, pension, gift and scholarship may not be included in the national income because these are already calculated.

2. illegal earnings :-
The illegal earnings like, bribery may not be included in the national income.

Expenditure method :-
If we add up all the expenditure incurred by individuals by firms and by the government agencies on goods and services which are produced in the country, we can get the national income to purchase these goods and services there would be a need of sufficient amount which may be equal to the market price. So to calculate the market price if we calculate the total expenditure, it will be equal to the national income. Following items are included in it :
1. Personal Consumption expenditure.
2. Gross domestic private investment.
3. Govt. expenditure in goods and services.
4. Gross domestic public investment.
5. Net foreign investment.
6. Net exports.
If we sum up above total expenditure it will be called GNP.

Precautions :

1. Final expenditure :-
Intermediate expenditure may not be counted a final expenditure should be counted.

2. Transfer payments :-
Transfer payments made by the government are not included in the national income.

3. Property income from abroad :-
Property income from abroad should be included in the national income.

4. Deduction of indirect taxes :-
The indirect taxes must be deducted from the market prices.

5. Depreciation allowances :-
The depreciation allowance should be also deducted.

The above three methods are used for measuring the national income. We may employ any of the three methods, the national income will be the same in each case.

4 comments:

Anonymous,  3 June 2013 13:58  

superb notes... easy to learn nd understand .... nyc wrk..

Anonymous,  6 December 2013 22:22  

NIcee one...
I prepared my question from your page for my exam.

Anonymous,  8 February 2014 20:07  

can you make it small
i need to prepare for my mini exam :p

lov
lolu

Anonymous,  20 April 2014 07:15  

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