National income is the total value of goods and services produced by a country during a financial year. It is basically the net result of all economic activities of any country during a period of one year and is valued in terms of money. It includes payments made to all resources either in the form of wages, interest, rent, and profits. The progress of a country can be determined by the growth of the national income of the country.
There are three ways of measuring the National Income of a country. They are from the income side, the output side and the expenditure side.
Methods of Measuring National Income are
- Product Method
- Income Method
- Expenditure Method
- Product Method
Under this method, we add the values of output produced or services rendered by the different sectors of the economy during the year in order to calculate the National Income.
In this method, we include only the value added by each firm in the production process in the output figure.
- Income Method
Under this method, we add all the incomes from employment and ownership of assets before taxation received from all the production activities in an economy. Thus, it is also the Factor Income method
- Expenditure Method
This method measures the total domestic expenditure of the economy. It consists of two elements, viz. Consumption expenditure and Investment expenditure.
Consumption expenditure includes consumption expenditure of the household sector on goods and services and consumption outlays of the business sector and public authorities.
Investment expenditure refers to the expenditure on the making of fixed capital such as Plant and Machinery, buildings, etc.
Ashi Sachdeva BBA 3rd TIAS New Delhi
