Answer to Question #127500 in Macroeconomics for Mailess

Question

Discuss the three methods of measuring national income

Answer 1

National income can be measured through three different methods. The methods are as follows:

1. Product method

In this method National income is determined by the market value of all the final goods and services produced within a nation during a fixed time period.( The goods and Services does not include intermediate goods.)

2. Expenditure method

Under this method the national Income is determined by the total spending on final goods and services which are produced within a nation in a fixed time period.

The four major categories of spending are :

a. Consumption (C)

b. Investment (I )

c. Government purchases of goods

and services ( G )

d. Net exports of goods and services(NX)

3. Income method

As the name suggests , national Income under this method is calculated by adding the incomes received by producers.

National income is the sum of eight different types of incomes , they are as follows:

a. Compensation of employees

b. Proprietor's income

c. Rental income of persons

d. Corporate profits

e. Net interest

f. Taxes in production and imports.

g. Business current transfer payments.

h. Current surplus of government enterprises.