National income and its measurement?

The definition of national income is grouped into two classes, the traditional definition and the modern definition.

According to pigoll classical economist.

“National income is that part of the objective income of a community, which can be measurement in term of money, it also include income corned from abroad”

Measurement of national income:

There are three methods used for the measurement of national income. They are is

1.     Product method.

2.     Income method.

3.     Expenditure method.

1.                 Product method:

This method is also called value added method, or national income at market price method. In this method the economy is divided into various sectors like agriculture, industry, transport and communication, services etc. the value of all the final goods and services produced in different sectors of the economy are added up. In order to measure. The national income using this method, two approaches are used.

                                                        i.            The product approach.

                                                      ii.            The value added.

i.                        The product approach:

 According to this approach the market value of all final goods and services produced in a period of one year is added up. It represents the flow of production over one year fixed period of time. We suppose that in a country during one year the following goods and service are produced.

Sector	production	Market value	Total market value
1.     Agriculture sector
Wheat	100 ø	RS 100 per quintal	RS 10000
Rice	150 ø	RS 200 per quintal	RS 18000
Cotton	100 ø	RS100 per hale	RS 10000
2.     Industrial sector
Cement	1000 bags	RS 100 per bag	100000
Cloth	1000 meter	RS 150 per meter	150000
3.     Service sector
Lawyers	60	RS 6000 per layer	360000
Doctors	100	RS 8000 per doctor	800000
Teachers	150	5000 per teacher	750000

So the national income of a country according to product approach is RS 81, 98,000/-

2.                 value added approach:

In the value added approach, the addition to the value of raw materials and other inputs during the process of production is counted for estimating the national income. Under this method the economy is divided into different sectors such as agriculture, manufacturing, mining, commerce, transport and communication, service etc. then the gross product is found out by adding up net value added at each stage which has taken place in various production units and industries (sector) during a given period.

Precaution using product method:

There are certain precautions which are to be taken to avoid miscalculation of national income by this method. They are as under.

                                                       i.            Excluding non-marketed goods and service:

There are certain services. Which are provided free by one person to another e.g. father teachers to his own sons, etc. these services are not sold in formal market. So they are ignored in the calculation of GNP.

                                                     ii.            Stress on final output:

While calculating the GNP, the values of only those goods are to be added which reaches to their final shape. The primary or intermediate goods are not counted in GNP.

                                                  iii.            Depreciation allowance are to be set aside:

Depreciation is the value of the capital that wears out during the period over which the economic activity is being measured. In the calculation of national income, depreciation is subtracted from GNP.

                                                   iv.            Deduction of indirect taxes:

Another necessary precaution is to deduct the indirect taxes which have been levied by the government on the commodities produced for sale.