National income

GS PAPER3, ECONOMY

SOURCE- THE HINDU

Introduction-

National income refers to a money value of a final goods and services produced within a country during a financial year. Whereas income level is the mostly used tool to determine the wellness & happiness of a nation and their citizens.

Reasons for its calculation:

  • To calculate the living standards of individuals.
  • To implement better policies for welfare of citizens & growth of an economy.
  •  It will help to increase the foreign investment in the money market.

 

THREE MAIN METHODS:-

1) Product/ Value Added Method:- This method is also known as output method, in this method, the total gross value of all final goods and services in different sectors ( industry, agriculture,service) are added to know the total production made in a specific year.

2) Factor income method:- In this method, national income is measured as the total sum of factor payment received in a certain period.

It includes land, labour, capital, entrepreneurship. Individuals who provide this factor services get payment in the form of rent, wages/ salaries.. etc, respectively, sum of total received by these individuals comprise the national income.

3) Expenditure method:- The expenditure method measures the national income as the sum total of expenditure made by individuals in the form of personal consumption, firm investment and government authorities on government purchase.

 

Since income from production is the result of expenditure made by entities on the production of goods and services within the economy, the result of expenditure method should be the same total as the product method.

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