The measurement of national income is a crucial aspect in economics, representing the

aggregate value of goods and services produced within a country during a specific time
period. This flow of economic output is determined through three primary methods: the
product method, income method, and expenditure method.

1. Product Method: This method involves summing the values of output or services
produced by various sectors of the economy in a given year. The focus is on the value
added by each firm in the production process, using the value-added method to
calculate Gross National Product (GNP) at factor cost. However, this method has been
criticized for being unscientific, as it only considers goods and services available for sale
in the market.
2. Income Method: The income method aggregates all incomes derived from
employment and ownership of assets, pre-taxation, generated by production activities in
the economy. This approach, also known as the Factor Income method, includes
undistributed profits from the private sector and trading surplus from public sector
corporations. Items unrelated to productive activities, like sickness benefits and interest
on the national debt, are excluded.
3. Expenditure Method: This method gauges the total domestic expenditure of the
economy, comprising consumption expenditure and investment expenditure.
Consumption expenditure encompasses household and business sector spending on
goods and services, while investment expenditure pertains to spending on fixed capital
such as machinery and buildings.

Difficulties in Measurement of National Income: Estimating national income faces

conceptual and statistical challenges.

Conceptual Difficulties:

1. Calculating the value of items like free services and goods used for self-consumption is
challenging.
2. Distinguishing between primary, intermediate, and final goods is sometimes unclear.
3. Determining the appropriate price for assessing the monetary value of a national
product is a complex decision.
4. Deciding whether to include the income of foreign companies emitting a significant
portion of their income outside the country poses a dilemma.

Statistical Difficulties:

1. Price level changes require the use of index numbers with inherent limitations.
2. Statistical figures may lack accuracy due to reliance on sample surveys and incomplete
data.
3. Different countries employ various methods to estimate national income, making
international comparisons challenging.

Usefulness of Estimating National Income:

1. It reflects changes in production and the impact of government policies on the

economy.
2. National income studies reveal the interdependence between different industries.
3. It provides insights into income distribution among economic units.
4. Understanding changes in consumer preferences helps producers make informed
production decisions.
5. The quantum of national income indicates a country's capacity to contribute
internationally, such as in memberships to organizations like the IMF, World Bank, or