Question

State the various methods of calculating national income and define them.

Answer 1

There are three concepts of national income namely :

1. Production
2. Income and
3. Expenditure.

Based on these three methods there are methods to calculate national income. They are:

1. Production Method
2. Income Method and
3. Expenditure Method.

1. Production (output) method:

• The sum of monetary value of finished goods and services produced in agriculture, industries and service sector in a country is called the national income of that country.
• This method of calculating national income has been developed from the definition given by Prof. Marshall.

2. Income method:

• The summation of the income earned by the citizens of a country and the state is called the national income of that country obtained as per the income method.
• This method of measuring national income has been developed from the definition given by Prof. Pigou.

3. Expenditure method:

• The method of considering the total expenditure incurred in purchasing finished goods or services during a financial year is called the expenditure method of measuring national income.
• This method has been devefoped from the definition given by Prof. Fisher.