Measurement of national income

The government imposes taxes on some people to pay interest to others. Besides, just as Kuznets hinted, improvement in standard of living can result from improvements in economic factors such as productivity or per capita real economic growth, income distribution and availability of public services, and non-economic factors, such as protection against unsafe working conditions, clean environment, low crime rate, and so forth.

The one great advantage of this method is that it reveals the relative importance of the different sectors of the economy by showing their respective contributions to the national income. Therefore, for estimating Gross Domestic Product we have to include only expenditure on final goods and services.

There are generally four factors of production labour, capital, land and entrepreneurship. As Lipsey has put it, changes in stocks only contribute to changes in GDP when their physical quantities change. 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.

3 Important Methods for Measuring National Income

Methods of measuring national income[ edit ] Output[ edit ] The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces.

In the example if bread, if the price paid by the consumer to the baker and the price paid by the miller to the farmer and that paid by the baker to the miller are all counted, it is "double counting".

It is so because a rise in prices increases the value of existing stocks even when there is no change in their volume. If the GDP is up, why is America down?

Measures of national income and output

But, the total output or income of society does not increase in the process. Expenditure approach to national income is shown through bar diagram in Table 2. Income received by basic factors like labor, capital, land and entrepreneurship are summed up.

3 Important Methods for Measuring National Income

In this method the value added by each enterprise in the production goods and services is measured. The actual usefulness of a product its use-value is not measured — assuming the use-value to be any different from its market value.

However, using these strictly economic statistics GNP, GDP as attempts to capture the standard of living trends and their mapping in any particular country, has serious problems. From the total value of these transactions recorded, in matrix forms, the national income value is known.

Usually, expenditures by private individuals, expenditures by businesses, and expenditures by government are calculated separately and then summed to give the total expenditure.

Advantage All these items notwithstanding, GDP per capita is often used as an indicator of standard of living in an economy, the rationale being that all citizens benefit from their country's increased economic production.

Thus, suitable adjustments have to be made in the estimates to make them tally. Since what they are paid is just the market value of their product, their total income must be the total value of the product. This is because we have to avoid double counting.Measuring the Economy: A Primer on GDP and the National Income and Product Accounts This paper introduces new users to the basics of the U.S.

national income and product accounts (NIPAs). It discusses the economic concepts that underlie the NIPAs, and it describes the seven NIPA summary accounts. Despite these difficulties involved in the satisfactory calculation of the national income, the latter serves as a broad indicator of a country’s material welfare and a summary measure of aggre­gate economic performances of a country.

ADVERTISEMENTS: The national income of a country can be measured by three alternative methods: (i) Product Method (ii) Income Method, and (iii) Expenditure Method. 1.

Explain the Various Methods of Measuring National income

Product Method: ADVERTISEMENTS: In this method, national income is measured as a flow of goods and services. NOTES Self-Instructional Material National Income: MEASURES OF NATIONAL INCOME Concept and Measurement Gross National Product (GNP)Of the various measures of national income used in national income analysis, GNP is the most important and widely used measure of national income.

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.

Measures of National Income For the purpose of measurement and analysis, national income can be viewed as an aggregate of various component flows. The most comprehensive measure of aggregate income which is widely known is Gross National Product at market prices.

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Measurement of national income
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