Measurement of National Income Respected teachers and dear friends, The topic of my seminar paper is ‘measurement of national income or the methods of measuring national income’. The concept of national income occupies an important place in economic theory. 

National income is the aggregate money value of all goods and services produced in a country during an accounting year. In this seminar paper, I would like to present various methods of measuring national income.

Content: 

National income can be measured in different ways. Generally there are three methods for measuring national income. 

They are

1. Value-added method 

2. Expenditure method 

3. Income method

1. Value-added method: 

The term that is used to denote the net contribution made by a firm is called its value-added. We have seen that the raw materials that a firm buys from another firm which are completely used up in the process of production are called ‘intermediate goods’. 

Therefore the value-added of a firm is the value of production of the firm – value of intermediate goods used by the firm. The value-added of a firm is distributed among its four factors of production, namely, labor, capital, entrepreneurship, and land. 

Therefore wages, interest, profits, and rents paid out by the firm must add up to the value-added of the rm. Value-added is a ow variable.

2. Expenditure Method: 

An alternative way to calculate the GDP is by looking at the demand side of the products. This method is referred to as the expenditure method. The aggregate value of the output in the economy by expenditure method will be calculated. 

In this method we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes.

3. Income Method: 

As we mentioned in the beginning, the sum of final expenditures in the economy must be equal to the incomes received by all the factors of production taken together (final expenditure is the spending on final goods, it does not include spending on intermediate goods). 

This follows from the simple idea that the revenues earned by all the firms put together must be distributed among the factors of production as salaries, wages, profits, interest earnings, and rents. 

That is GDP = W + P + In + R

Conclusion: 

Thus it can be concluded that there are three methods for measuring national income. These methods are value-added method, income method and expenditure method. Usually in estimating national income, different methods are employed for different sectors and sub sectors.