Expenditure Method: This method focuses on goods and services produced within the country during one year. For example, transport, utility services, etc. For instance, raw materials, semi-finished products, fuels and services, etc. The Department of Employment Statistics weighs different items by computing the price of a basket of goods and services purchased by a typical consumer. He might be contributing his capital, land, labour and his abilities in the business. But the net national income earned from abroad may be positive or negative. The components of final product method are as follows: i.
Consumption expenditure is denoted by C and investment spending as I. Again, it often happens that the cost of production of a commodity to the producer is higher than a price of a similar commodity in the market. For instance, in order to find out the per capita income for 2001, at current prices, the national income of a country is divided by the population of the country in that year. Gross domestic product is the money value of all final goods and services produced within the domestic territory of a country during a year. Shortcuts which can be life-changing and in this case transform your wealth. The Equilibrium Level of National Income : In the microeconomics market for a single good, an equilibrium is said to exist when the demand for the goods is equal to the supply of it.
Similarly, the baker sells bread to the traders at Rs. National Policies: National income data form the basis of national policies such as employment policy, because these figures enable us to know the direction in which the industrial output, investment and savings, etc. Direct taxes are imposed on personal and corporate incomes while indirect taxes are imposed on commodities. Yet this approach would treat all goods and services equally. Therefore, it represents both monitory real sector.
National and Domestic Concepts The term national denotes that the aggregate under consideration represents the total income which accrues to the normal residents of a country due to their participation in world production during the current year. When charges for depreciation are deducted from the gross national product, we get it. In cases like this we can apply Hicks-Kaldor condition for a potential improvement. The additions include transfer payments such as pensions, unemployment allowances, sickness and other social security benefits, gifts and remittances from abroad, windfall gains from lotteries or from horse racing, and interest on public debt. Now let us consider the output side of the national income. Also, a correction term must be introduced to account for imports and exports outside the boundary.
It also gives us an information regarding the personal consumption pattern. But the product must be produced in the country alone as the net earnings from abroad are excluded. The calculation of national income by income approach is presented in by the hypothetical table. Net National Product, in-fact, is the value of total consumption plus the value of net investment of the community. They are income method, expenditure method, and product method. This amount must equal the value of everything produced.
It is called the national income accounts identity. Because it is fully equipped with theoretical and practical significance. But it should be remembered while calculating this income that the whole of the disposable income is not spend on consumption and a part of it is saved. These imperfections arc most problematic when comparing standards of living across countries. I want you to promise me something. The users of such resources make the payment of factors of production in the form of rent, wages, interest, profit, payments for raw materials. But if he spends the amount for using it as a taxi, it is investment expenditure.
Note that all three counting methods should in theory give the same final figure. In addition, some of the output of the economy is produced and consumed at home and never enters the marketplace. Taking these two items we get net income from abroad. This avoids an issue often called '', wherein the total value of a good is included several times in national output, by counting it repeatedly in several stages of production. Sometimes, there may be double calculation of same product if the calculation is done from the different stage of production. In this method, national income is measured as a flow of expenditure incurred by the society in a particular year.
Measurement Problems of National Income : Problems arise in aggregation largely because of the difficulty of finding an appropriate unit of measurement. Thus this method establishes the importance of intermediate products in the national economy. Though the services rendered are the same or rather better. Second, income received on account of investment in foreign countries is included in national income. If therefore, becomes difficult to measure in money the service value of these goods from the point of view of consumption. It even includes earnings that don't flow back into the country.
In real terms, national income is the flow of goods and services produced in the economy in a particular period—a year. In their case, it is very difficult to find out the different inputs provided by the owner himself. The prices are set to 100 or 1 in the base year. But it is not very reliable, because in every country due to unequal distribution of national income, a major portion of it goes to the richer sections of the society and thus income received by the common man is lower than the per capita income. Definition of National Income : National income of a country means the sum total of incomes earned by the citizens of that country during a given period, say a year. They do not reflect additional production. We count all goods and services produced by the nationals of the country or businesses owned by them regardless of where that production physically takes place.