In this method, the production for self-consumption should be valued at the prevailing market prices. National income is the value of all goods produced in the economy that are final goods i. Adjustment for financial services interest payments must be allowed and special care must be taken to prevent double counting. Different concepts of National Income 1. A preferable alternative is to total the values added at each stage of production. In other words, national expenditure in a closed economy is the sum of nation's consumption and its investment.
This problem can be avoided by including only the value added at each stage of production or by adding only the final value of output produced. This method is usually used in case of owner-occupied houses i. Stock appreciation must also be deducted. Value added measures the flow that leaves productive sector, national income measures the amount received by households and final demand or expenditure is the amount reaching the productive sector again. For example, these could be the prices that existed in 1999 - termed the 'base year'. Expenditure Method These methods are discussed billow: 1. It includes consumption of goods, gross investment, government expenditures on goods and services, and net exports.
Along with microeconomics, macroeconomics is one of the two most general fields in economics. The costs are estimated either in absolute terms where input data are adequately available or as an overall ratio of input to the total output. Income method measures the incomes received by different factors of production Land, Labour, Capital, Entrepreneurs. In our economy product approach benefits various sectors like forestry, agriculture, mining etc to estimate gross and net value. We have to exclude all the expenditure on intermediate goods and services. Factor Cost Measure: National expenditure is measured at market prices. In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets.
Almost all countries have been devising and implementing various plans for the economic progress of their economies. The major challenge of this method is the problem of double-counting. There is no accurate information available regarding consumption, investment expenditure and savings of either rural or urban population. Income can be spent either on consumer goods or capital goods. Subsistence sector growing for own sake can also contribute considerably to the national welfare in less developed countries.
But, it represents no increase in real output. They may not leave the business premises, expenditure on them will be a part of the final expenditure. Profit includes corporate tax, dividend and undistributed profit. There are three main approaches to measuring National Income these are; 1. Though these payments are not made to others, their values can be easily estimated from prevailing values in the market. These sectors generate factor incomes. While referring to the concept of value added economists draw a distinction between intermediate goods like tyres and types which are used as inputs into a further stage of production and final goods that are the outputs of the economy after eliminating all double multiple counting and are used for consumption and not for further production.
However, it should he borne in mind that no single method can give an accurate measure of national income. We can measure the national income by the following three methods 1. Individuals earn incomes by contributing their own services and the services of their property such as land and capital to the national production. National income method includes the income from employment and from self-employment; gross trading profits of companies, public corporations and general govn enterprises; rent and the imputed charge for the consumption of non-trading capital benefits from living own houses and stock appreciation gain in value. But, the total output or income of society does not increase in the process. The government imposes taxes on some people to pay interest to others.
However, income received in the form of transfer payments are not included. We exclude: Transfer payments e. In fact, the market prices of most of the commodities that we buy include indirect taxes and some of them include an element of subsidy. The production of bread, for Instance, has three stages i,e. Counting the final output of both industries will result in double-counting of the value of tyre. It is wise to use any method in measuring national income. This approach is also called as income distributed approach.
In short, certain goods and services may be provided by a person for himself or herself and it is very difficult to include these in calculations altogether. It is so called because people can dispose it off as they wish. As a broad rule, all purchases charged to current expense by business are treated as intermediate goods added to stock within the accounting period represent an addition to capital and though. Factors of production are classified as land, labor, capital and organisation. The value added at each stage can now be allocated to various factors of production. Thus, the same total can be reached by either summing up the value added at each stage of production or summing up all the factor incomes generated in the process of production. National income is a measure of the total value of goods and services produced in a country over a given period, usually a year.