Question

1. Explain the three methods for measuring the National income of a country. Write 12 point

Answer 1

Three methods for calculating or measuring the National income (NNPfc) of a country are as follows:

1. Value added method - The value-added method is also known as the production method. In this type of method, national income (net national product at factor cost) is calculated or measured by the value addition of total goods and services produced by the industries or firms within a country in an accounting year or specific period.

In the product or value-added method, there must be a value addition of all sectors. ( Value added or gross value added = gross value added of primary sector + gross value added of secondary sector + gross value of tertiary sector)

National income (NNPfc) = Gross value added - Depreciation - Net indirect taxes (indirect taxes - subsidies) + Net factor income from abroad

2.Income method - It is also known as the factor payment method. In this type of method, national income (NNPfc) is calculated or measured based on factor payment to the factor of production. Factor payment includes rent for land, interest for capital, profit for enterprises, and compensation for employees (wages and salaries).

National income = Factor payments + Net factor income from abroad + Mixed income

3. Expenditure method - In this type of method national income (NNPfc) is calculated or measured based on expenditure that occurred in the economy. Expenditure includes consumption expenditure (C), investment expenditure (I), government spendings (G), and net exports (NX = Exports - Imports).

National income = C + I + G + NX - Depreciation - Net indirect taxes + Net factor income from abroad