Explain 3 Ways of Measuring National Income of a Country
Measurement of national income in an economy is very important because it gives an estimation of the welfare of the economy. National income is the total of the value of the goods and the services which are produced in an economy. The basic measures of national income include GDP, GNP, GNI, NNP and NNI. There are three approaches through which national income can be calculated including; output approach, income approach and expenditure approach. All of these approaches give the same value of the national income.
The method for calculating National Income by Output:
The output method, which is the combined value of the new and final output produced in all sectors of the economy, including manufacturing, financial services, transport, leisure and agriculture.
GDP at market price = Value of Output in a year - Intermediate consumption
The measurement of National Income by Value Added method:
The expenditure method, which adds up all spending in the economy by households and firms on new and final goods and services by households and firms.
NNP at factor cost = GDP at market price - Depreciation + NFIA (Net Factor Income from Abroad) - Net Indirect Taxes
The measurement of National Income by Income Method:
The income method, which adds up all incomes received by the factors of production generated in the economy during a year. This includes wages from employment and self-employment, profits to firms, interest to lenders of capital and rents to owners of land
NDP at factor cost = compensation of employee + operating surplus + Mixed income of self employee
National Income = NDP at factor cost + NFIA (net factor income from abroad)
:
GDP = C + I + G + (X - M)
Where:
C = Personal consumption expenditures
I = Gross investment
G = Government consumption
X = Gross exports
M = Gross
The method for calculating National Income by Output:
The output method, which is the combined value of the new and final output produced in all sectors of the economy, including manufacturing, financial services, transport, leisure and agriculture.
GDP at market price = Value of Output in a year - Intermediate consumption
The measurement of National Income by Value Added method:
The expenditure method, which adds up all spending in the economy by households and firms on new and final goods and services by households and firms.
NNP at factor cost = GDP at market price - Depreciation + NFIA (Net Factor Income from Abroad) - Net Indirect Taxes
The measurement of National Income by Income Method:
The income method, which adds up all incomes received by the factors of production generated in the economy during a year. This includes wages from employment and self-employment, profits to firms, interest to lenders of capital and rents to owners of land
NDP at factor cost = compensation of employee + operating surplus + Mixed income of self employee
National Income = NDP at factor cost + NFIA (net factor income from abroad)
:
GDP = C + I + G + (X - M)
Where:
C = Personal consumption expenditures
I = Gross investment
G = Government consumption
X = Gross exports
M = Gross