Methods Of Calculating National Income
Methods For Calculating National Income
Methods of Measuring National Income:
There are four methods of measuring national income. Which method is to be used depends on the availability of data in a country and the purpose in hand.
1. Production Method
This method is based on the total production of a country during a year. According to this method, the total value of final goods and services produced in a country during a year is calculated at market prices. Only the final goods and services are included and the intermediary goods and services are left out. First of all production units are classified into primary, secondary and tertiary sectors then we identify the various units that come under these sectors. We estimate the goods and services produced in each of these sectors. The sum total of products produced in these three sectors is the total output of the nation. The next step is to find out the value of these products in terms of money. The money sent by Indian citizens working abroad is also added to this. Now we get the gross national income.
GDP = Money value of final goods and services + Income from abroad
2. Income Method
According to this method, the net income payments received by all citizens of a country in a particular year are added up, i.e. net incomes that accrue to all factors of production by way of net rents, net wages, net interest and net profits are all added together but incomes received in the form of transfer payments are not included in it.
GDP = Rent + Wage + Interest + Profit + Income from abroad
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