National Income

National Income All goods and services produced in the country must be counted and converted against money value during a year. Thus, whatever is produced is either used for consumption or for saving. Thus, national output can be computed at any of three levels, viz., production, income and expenditure. Accordingly, there are three methods that are used to measure national income. . Production or value added method . Income method or factor earning method . Expenditure method And if these methods are done correctly, the following equation must hold Output = Income = Expenditure GDP deflator = Nominal GDP x Real GDP - - National Income This is because the three methods are circular in nature. It begins as production, through recruitments of factors of production, generating income and going as incomes to factors of production. . . Product Method Product method measures the output of the country. It is also called inventory method. Under this method, the gross value of output from different sectors like agriculture, industry, trade and commerce, etc., is obtained for the entire economy during a year. The value obtained is actually the GNP at market prices. Care must be taken to avoid double counting. The value of the final product is derived by the summation of all the values added in the productive process. To avoid double counting, either the value of the final output should be taken into the estimate of GNP or the sum of values added should be taken. In India, the gross value of the farm output is obtained as follows : (i) Total production of agriculture commodities is estimated. The output of each crop is measured by multiplying the area sown by the average yield per hectare. (ii) The total output of each commodity is valued at market prices. (iii) The aggregate value of total output of these commodities is taken to measure the gross value of agricultural output. (iv) The net value of the agricultural output is measured by making deductions for the cost of seed, manures and fertilisers, market charges, repairs and depreciation from the gross value.