explain various methods of measurement of national income with problem faced and precautions take
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income is the value of the aggregate output of the different sectors during a certain time period. In other words, it is the flow of goods and services produced in an economy in a particular year. Thus, the measurement of National Income becomes important.
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National Income
Measurement of National Income
National income is the value of the aggregate output of the different sectors during a certain time period. In other words, it is the flow of goods and services produced in an economy in a particular year. Thus, the measurement of National Income becomes important.
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Measurement of National Income
There are three ways of measuring the National Income of a country. They are from the income side, the output side and the expenditure side. Thus, we can classify these perspectives into the following methods of measurement of National Income.
Methods of Measuring National Income
Product Method
Income Method
Expenditure Method
1. Product Method
Under this method, we add the values of output produced or services rendered by the different sectors of the economy during the year in order to calculate the National Income.Browse more Topics under National Income
The concept of National Income
The concept of Consumption, Saving, and Investment
Economic Growth
Economic Fluctuations
2. Income Method
Under this method, we add all the incomes from employment and ownership of assets before taxation received from all the production activities in an economy.
Thus, it is also the Factor Income method. We also need to add the undistributed profits of the private sector and the trading surplus of the public sector corporations.
However, we need to exclude items not arising from productive activities such as sickness benefits, interest on the national debt, etc.
3. Expenditure Method
This method measures the total domestic expenditure of the economy. It consists of two elements, viz. Consumption expenditure and Investment expenditure.
Consumption expenditure includes consumption expenditure of the household sector on goods and services and consumption outlays of the business sector and public authorities.