Investment may be gross or net. With this method of measuring national income the problem is that there may be ignorance of adding all the benefits in kind or even the accurate value of the benefits provided in kind to the employees may be difficult to estimate. The main items of income are shown in Table 1. In other words, this method measures national income at the phase of distribution and appears as income paid and or received by individuals of the country. How is a method chosen for measuring national income? The value obtained is the gross domestic product. Hence these estimates are considered as the main basis for devising economic policies by the government.
We need not measure their actual consumption that occurs during the year or any other period under consideration. Stock appreciation must also be deducted. The income method works by summing the incomes of all producers within the boundary. The methods are product method, income method and expenditure method. Adjustments must then be made for taxes, , and foreign factor payments. All the three methods would give the same measure of national income, provided requisite data for each method is adequately available.
It would be misleading to the figures for national income at market prices since it would mean that the value of national output could be increased by raising the rates of indirect taxes such as sales tax or excise duty. Their income is called mixed income. Similar timing issues can also cause a slight discrepancy between the value of goods produced Product and the payments to the factors that produced the goods Income , particularly if inputs are purchased on credit, and also because wages are collected often after a period of production. But most economies are open in the sense that they carry out foreign trade in goods and services and financial transactions with the rest of the world. . Exports: If we use the value added method of estimating national output, we have to include exports but exclude imported materials and services. Death duties, gift tax, wealth tax, tax on lotteries, etc.
Each sandwich is priced at £1. Earlier, many attempts were made by some individuals and institutions. Measuring national income at may overcome this problem at the risk of overvaluing basic goods and services, for example subsistence farming. This includes both black markets selling illegal goods and informal markets selling legal goods illegally to circumvent price restrictions. Chapter 1; heading: Brief history of economic accounts retrieved November 2009. Their sum gives an alternative way of calculating the value of final output.
Product method is given by Dr. Value of intermediate goods must not be counted while measuring value added because this will amount to double counting. There items are, however, included in the private incomes. If we use the constant prices method we could express both 2002 and 2003 output at the same price level. Imputed rent values of self-occupied houses should be included in the value of output. Income Method: This method approaches national income from distribution side.
Because of self-employment nature of the business it is difficult to separate wages for the work done by the self-employed from the surplus or profits made by them. One can however obtain an estimate of national income by summing up the private incomes after making necessary adjustments for the items excluded from the national income. This is the true net annual income or revenue of the country or national dividend. If in terms of market prices, then figures will be distorted by inflation even though national output may have remained the same. The market rents of similar properties are used as measuring rod for the imputed rents of premises occupied by their owners.
The net incomes earned by the factors of production in the form of rent, wage, interest and profit aggregated but incomes in the form of transfer payments are not included in the national income. The major aspects of macroeconomics that are generally used in business analysis, especially in analyzing and understanding business environment of the country include i the level and trends in. The total sum of income received by these individuals comprise the national income for a given period of time. Income per capita is a way of measuring the standard of living for the inhabitants of a country. Value added by an enterprise is obtained by deducting expenditure incurred on intermediate goods such as raw materials, unfinished goods purchased from other firms from the value of output produced by an enterprise.
There are four different method of measuring national income. Mahalanobis as its Chairman, and D. Government frames proper economic policies with the help of these estimates. This is acceptable to economists, because, like income, the total value of all goods is equal to the total amount of money spent on goods. A short period rise in national income during an upswing of an economic cycle does not constitute economic development. The method for calculating National Income by Output: The output method, which is the combined value of the new and final output produced in all sectors of the economy, including manufacturing, financial services, transport, leisure and agriculture.
At one time national income estimates are carried on by a few statisticians and philanthropic organizations. Only government expenditure on currently produced goods and services is to be included. Conceptually, national income is the money value of the end result of all economic activities of the nation. Usually, expenditures by private individuals, expenditures by businesses, and expenditures by government are calculated separately and then summed to give the total expenditure. · Income that is not registered. Thus, if aggregate inventories of Indian companies go down, national income will raise. The following are some major difficulties: a Inadequacy, non-availability and unreliability of accurate data relating to the various sectors of the economy; b Difficulties of reducing the various, diverse economic activities of the people to a common measurable denominator; c Difficulties in excluding raw materials and semi-finished goods from the estimates of national income, in order to avoid the errors of double counting; d Difficulties in discovering true transfer payments e.
Under this method, the is calculated by adding up all the incomes accruing to the basic factors of production used in producing the national product. Briefly speaking, the easy availability of data on economic activities is the main reason for the popularity of the output method. In this method, national income is measured as a flow of expenditure incurred by the society in a particular year. In such cases, it is not possible to arrive at a market measurement of the value of the output. Hope this article will help you to understand national income definition and formula.