METHODS OF CALCULATING NATIONAL INCOME


 National Income is the sum total of income accruing to a country from different economic activities in an accounting year.

According to Circular Flow Model, National Income can be viewed from three different angels:

1) as an aggregate of value of goods and services produced in an economy.

2) as the sum total of income generated in an economy

3) as the aggregate of expenditure on the final goods and services.

Accordingly, we have three methods of calculating National Income:

1. VALUE ADDED METHOD/ PRODUCT METHOD - Value added method calculates national                                                                                                             income in terms of value addition by each production unit in the economy during the period of a year.


Value added (GDP at MP ) = Value of Output - Intermediate Consumption


National Income ( NNP at FC ) =    GDP at MP

                                                             - Depreciation 

                                                            - Net Indirect Taxes

                                                            + Net Factor Income From Abroad

2. INCOME METHOD - Under Income method, National Income is estimated in terms of factor                                                     payments to the owners of factors of production during an accounting year. This aggregate is further adjusted to derive at NNP at factor cost.


National Income (NNP at FC )  =   Compensation of Employees

                                                            + Operating Surplus

                                                            + Mixed Income of self employed

                                                            +Net factor income from abroad 

where Operating surplus stands for Rent + Interest + Profit.

3. EXPENDITURE METHOD - According to Expenditure Method,  National Income is an                                                                         aggregate of Private Consumption Expenditure, Investment expenditure, government purchases and Net exports (X-M). This sum total is further adjusted as shown in the given formula to obtain National Income.


National Income (NNP at FC ) =  Private Consumption Expenditure

                                                        + Investment Expenditure

                                                        + Government purchases

                                                        + Net Exports i.e X-M

                                                        - Depreciation

                                                        - Net Indirect Taxes

                                                        + Net factor income from abroad

 





Comments

Unknown said…
Very needful information and excellent work
May 24, 2021 at 1:33 AM
Unknown said…
thnk uh, it is very helpful for us .
May 25, 2021 at 2:30 AM
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