Question

While estimating national income, why do you use final goods only? How is GDP calculated by the income approach. Explain the different stages involved in it

Answer 1

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While estimating the national income only the value of the final goods and services is used because the value of final goods already includes the value of all the intermediate goods that are used in making the final goods

Answer 2

While estimating national income only the value of final goods and services is used so as to avoid the process of double counting. The GDP gives information on the production of goods in that year.

Explanation:

• The GDP of a country is the information on the 'production of goods and services' in the specific year. The income approach takes into account the the 'consumption factor', ''the investments,  expenditure made by the government, exports that have taken place and the total imports in the country. The total income of the production of goods and services should be in comparison or equal to the expenditure of the economy
• While calculating the GDP of the country one takes the total national income into consideration. The national income entails the total "estimate of the wages" in the country, adjusting with the 'taxes of the government', make the adjustments with the 'depreciation factor' and the with the total income related to the foreign factors. Understanding the GDP of the country helps in evaluating the strength of the economy.

To know more about estimating the national income

National income estimation is the responsibility of ________

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