Demand and Supply
What are the uses of National Income figures?
Before understanding the uses of National Income figures it is of the utmost importance to define National Income and the three methods used to calculate it.
National Income is the aggregate money value of goods and services produced by the factors of production over a given period of time in a country. It is the annual report and as a result it is referred as the real income, that is, income measured in terms of goods and services. When there is income generated it is the result of output being produced and the output will be purchased from the expenditures of both private and public sectors. In other words the total value of output as well as the total value of expenditure such that National Income will be equivalent to national output which will be equivalent to national expenditure.
Therefore if we want to calculate the National Income of a country, we can use three distinct methods.
The Income Method:
This method of measuring National Income takes into account all the incomes generated when producing the national output. When we add up all the incomes like wages, rate, interest, profits, profits, surplus of government enterprises we get National Income of a country. Transfer payments are not included in the calculation of National Income because those are incomes which are earned without any production.
The Output Method:
The output method is also known as the value added method. With this method we add up all the net outputs of the different production units in the country. With this method we must not include the intermediaries because this would lead to double counting.
The Expenditure Method:
Expenditure method of measuring national income measures the national income of a country by adding all the expenditures made by the people of the country and it also includes the expenditures made by the government of the country.
Expenditure method of national income measures only the value of final purchase
Before understanding the uses of National Income figures it is of the utmost importance to define National Income and the three methods used to calculate it.
National Income is the aggregate money value of goods and services produced by the factors of production over a given period of time in a country. It is the annual report and as a result it is referred as the real income, that is, income measured in terms of goods and services. When there is income generated it is the result of output being produced and the output will be purchased from the expenditures of both private and public sectors. In other words the total value of output as well as the total value of expenditure such that National Income will be equivalent to national output which will be equivalent to national expenditure.
Therefore if we want to calculate the National Income of a country, we can use three distinct methods.
The Income Method:
This method of measuring National Income takes into account all the incomes generated when producing the national output. When we add up all the incomes like wages, rate, interest, profits, profits, surplus of government enterprises we get National Income of a country. Transfer payments are not included in the calculation of National Income because those are incomes which are earned without any production.
The Output Method:
The output method is also known as the value added method. With this method we add up all the net outputs of the different production units in the country. With this method we must not include the intermediaries because this would lead to double counting.
The Expenditure Method:
Expenditure method of measuring national income measures the national income of a country by adding all the expenditures made by the people of the country and it also includes the expenditures made by the government of the country.
Expenditure method of national income measures only the value of final purchase