The Measurement

Of National
Income
Presented
By,
Tania
Majumder
There are three methods of calculating national income. These are:

 The Output or Value-added Method

 The Expenditure Method

 The Income Method

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 The Output Or Value-Added Method

The output method is followed either by valuing all the final goods and services produced during
a year or by aggregating the values imparted to the intermediate products at each stage of
production by the industries and productive enterprises in the economy. The sum of these values
added gives the gross domestic product at factor cost which after a similar adjustment to include
the factor income from abroad gives gross national product at factor cost.
This approach is used to estimate gross and net value added in the primary sectors Ex.
Agriculture, and allied activities, forestry and logging, fishing, registered manufacturing etc. Of
the Indian Economy.

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 Value Added Method=
The agricultural and extractive industries+
Manufacturing industries+ Services and Construction=
Gross Domestic Product at Factor Cost+ Net factor
income from abroad = Gross National Product at Factor
Cost – Capital Consumption or depreciation
 The Expenditure Method
The Expenditure method aggregates all money spent by private citizens, firms and
the government within the year, to obtain total domestic expenditure at market prices.
This includes consumer spending and investment i.e. Total domestic spending. It
aggregates only the value of final purchases and excludes all expenditures on
intermediate goods. However, since final expenditure at market prices includes both
the effects of taxes and subsidies and our expenditures on imports while excluding
the value of our exports, all these transactions have to be taken into account before
we obtain gross national product by this method.

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 The Expenditure Method=
Consumer’s expenditure+ Government current
expenditures on goods and services+ Gross domestic
fixed capital formation+ Value of physical increase in
stocks and work in progress= Total Domestic
Expenditure at Market Prices + Exports and factor
income from abroad= GNPmp – Indirect Taxes +
Subsidies= Gross national product at factor cost
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 The Income Method
The income approach to measuring national income does not simply aggregate all incomes. It
aggregates only those of that residents of the nation, corporate and individual, that obtain
income directly from the current production of goods and services. It aggregates the
money payments made to the different factors of production i.e. Factors income and
excludes all income which cannot be considered as payment for current services to
production.

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 The Income Method=
Income From Employment + Income From self-Employment +
Gross trading profits of companies + Gross trading surplus of
public corporations + Rent= Gross Domestic Product at
Factor Cost + Net Income From Abroad = Gross National
Product At Factor Cost

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 THANK
YOU