Four methods of measuring national income


national income
four method of measuring national income



Every nation has an economic policy that guides them direction of the country standard of living; this is done through the national income it is used to measure the growth and development of the nation. Here we are going to be looking at the four method of measuring national income in a country, these methods are use depending on the availability of the data in a country and the purpose at hand and what is to be achieved. Below are the four main methods of measuring national income:


1.      Product method

2.      Income method

3.      Expenditure method

4.      Value added method


Product method:

According to this method, the total value of final services and goods produce in a country or nation in a year is calculated at the market price in the economy. To discover out the gross net product, the data of all productive activities, which include agriculture products, woods receive from forest, mineral collected from mining, commodities produced by industries, the contribution to production made by the communication and transport industries likewise the insurance companies, lawyers, doctors, teachers etc. this data are collected and assessed at the market price in the economy. Only the final goods and services are included and the intermediary goods and services are left out.


Income method:


According to this method, the net income payments received by all citizens of a country in a particular year are added up, therefore the net incomes that accrue to all factors of production by way of net rents, net wages, net interest and net profits all added together but incomes received in the form of transfer payments are not included in it. The data pertaining to income are obtained from different sources, for instance, from income tax department in respect of high income groups and in case of workers from their wage bills.


Expenditure method:

According to this method, the total expenditure incurred by the society in a particular year is added to together and includes personal consumption expenditure net domestic investment, government expenditure on goods and services, and net foreign investment. This concept is based on the assumption that nation income equals national expenditure.


Value added method:


Another method of measuring nation income is the value added by industries. The difference between the value of material outputs and inputs at each stage of production is the value added. If all such differences are added up for all industries in the economy, we arrive at the gross domestic’s product.


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