Method of Measuring National Income
There are four methods of measuring national income.
Which method is to be employed depends on the availability of data in a country and the purpose in hand.
(1) Product Method- According to this method, the total value of final goods and services produced in a country during a year is calculated at market prices. To find out the GNP, the data of all productive activities, such as agricultural products, wood received from forests, mineral received from mines, commodities Produced by industries, the contributions to production made by transport, communications, insurance companies, lawyers, doctors, teachers etc. are collected and assessed at market prices. Only the final goods and services are included and the intermediary goods and services are left out.
(2) Income Method- According to this method, the
net income payments received by all citizens of a country in a particular year ate added up, i.e., net incomes that accrue to all factors of production by way of net rents, net wages, net interest and net profits are all added together but incomes received in the form of transfer payments are not included in, it. The data pertaining to income are obtained from different sources, for instance, from income tax department in respect of high income groups and incase of workers from their wages bills.
(3) Expenditure Method- According to this method, the total expenditure incurred by the society in a particular year is added together and includes personal consumption expenditure, net domestic investment, government expenditure on goods and services, and net foreign investment. This concept is based on the assumption that national income equals national expenditure.
(4) Value Added Method- Another method of measuring national income is the value added by industries. The difference between the value of material outputs and inputs at each stage of production is the value added. If all such differences are added up for all industries in the economy, we arrive at the gross domestic product.