What Are The Methods Of Measurement Of National Income?

Measurement of national income in an economy is very important because it gives an

estimation of the welfare of the economy. National income is the total of the value of the
goods and the services which are produced in an economy. The basic measures of
national income include GDP, GNP, GNI, NNP and NNI. There are three approaches
through which national income can be calculated including output approach, income
approach and e!penditure approach. "ll of these approaches give the same value of the
national income.
The method for calculating National Income by Output, Value Added
method:
GDP at mar#et price $ %alue of &utput in a year ' Intermediate consumption
NNP at factor cost $ GDP at mar#et price ' Depreciation ( N)I" *Net )actor Income
from "broad+ ' Net Indirect Ta!es
The measurement of National Income by Income Method:
NDP at factor cost $ compensation of employee ( operating surplus ( Mi!ed income of
self employee
National Income $ NDP at factor cost ( N)I" *net factor income from abroad+
The measurement of National Income by !penditure Method:
GDP $ , ( I ( G ( *- ' M+
.here/
, $ Personal consumption e!penditures
I $ Gross investment
G $ Government consumption
- $ Gross e!ports
M $ Gross imports
.e have three methods to measure national income.
0. Total output method .
In this method we ta#e the summation of monetary value of final goods and services
produce in a economy during a year.
1. )actor income method.
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There are three methods which are commonly used for the measurement of national
income. These methods include output value added method, income method and
e!penditure method.
National Income by Output, Value Added method:
GDP $ %alue of &utput yearly ' Intermediate consumption
NNP < factor cost $ GDP at mar#et price ' Depreciation ( N)I" ' Net Indirect Ta!es
National Income by Income Method:
NDP < factor cost $ compensation of employee ( operating surplus ( Mi!ed income of
self employee
National Income $ NDP ( N)I"
National Income by 4!penditure Method/
GDP $ , ( I ( G ( *- ' M+
)or complete details/ National income measurement
The output approach
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.
;ecause of the complication of the multiple stages in the production of a good or service,
only the final value of a good or service is included in total output. This avoids an issue
often called =double counting=, wherein the total value of a good is included several times
in national output, by counting it repeatedly in several stages of production. In the
e!ample of meat production, the value of the good from the farm may be >0?, then >9?
from the butchers, and then >@? from the supermar#et. The value that should be included
in final national output should be >@?, not the sum of all those numbers, >0??. The values
added at each stage of production over the previous stage are respectively >0?, >1?, and
>9?. Their sum gives an alternative way of calculating the value of final output.
)ormulae/
GDP*gross domestic product+ at mar#et price $ value of output in an economy in a
particular year ' intermediate consumption
NNP at factor cost $ GDP at mar#et price ' depreciation ( N)I" *net factor income from
abroad+' net indirect ta!es
0. .hat Is Difficulties &f Measurement In National IncomeA
1. .hat "re The Methods &f National Income 4stimationA
9. &n the basis of the identity between the Net National Product *NNP+ and the Net
National Income...
B. .hat "re Methods &f ,omputing National IncomeA
Product method Income method e!penditure method
C. .hat "re The Methods &f Measuring National IncomeA
Income method e!penditure method output method
@. Discuss &ne Method &f ,omputing National Income. Is This Measurement P...
The national Income can be directly calculated from the subtraction of indirect ta!es
from...
D. .hat "re The Methods "nd Difficulties 4stimating National IncomeA