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Methods of Estimating National Income

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Methods of Estimating National Income

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  • August 19, 2012
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National Income (Contd.)

Methods used to measure National Income

Calculating National Income
There are various methods for calculating the national income such as production method, income method, expenditure method etc.

Income Method:

Different factors of production are paid for their productive services rendered to an organization. The various incomes that are included in these methods are wages, income of self-employed, interest, profit, dividend, rents, and surplus of public sector and net flow of income from abroad.

Expenditure Method:

The various sectors – the household sector, the government sector, the business sector, either spend their income on consumer goods and services or they save a part of their income. These can be categorized as private consumption expenditure, private investment, public consumption, public investment etc. as shown in the above table.

ProductMethod
The production method gives us national income or national product based on the final value of the produce and the origin of the produce in terms of the industry.

All producing units are classified sector wise.
• Primary sector is divided into agriculture, fisheries, and animal husbandry. • Secondary sector consists of manufacturing.
• Tertiary sector is divided into trade, transport, communication, banking, insurance etc

Problems on National Income-

1. With the help of following data, calculate National Income at factor cost.

GNP = 5, 00,000 Crs.
Depreciation = 50,000 Crs.
Indirect taxes = 30,000 Crs.
Subsidies = 5,000 Crs.

Solution:

NI at factor cost = GNP – Depreciation – Taxes + Subsidies. = 5, 00,000- 50,000 – 30,000+5,000 = 4, 25,000 Crs.

Calculate GNP and NNP from the following data. Net income from abroad is Rs. 1,400 Crs., GDP is Rs.20, 000 Crs.,...