Methods of measuring national income

There are 4 methods of measuring national income. Which method is to be used depends on the availability of data in a country and the purpose in hand.

1) PRODUCT METHOD; - according to this method,  the total value of final goods and services produced in a country during a year is calculated at market prices. To find out the GNP,  the data of all productive activities are collected and assessed at the market prices.  Only the final goods and services are included and the intermediary goods and services are left out.

2) INCOME METHOD:- according to this method, the net income payments received by all citizens of a country in a particular year are added up. It takes into account the net incomes that accrue to all factors of production. The data pertaining to income are obtained from different sources.

3) EXPENDITURE METHOD:- according to this method,  the total expenditure incurred by the society in a particular year is added together and includes consumption,  investment,  government and foreign expenditures.  This concept is based on the assumption that national income equals national expenditure.

4) VALUE ADDED METHOD:- Another method of measuring national income is the value added by industries.  The difference between the value of material outputs and inputs at each stage of production is the value added. If all such differences are added up for all industries in the economy,  we arrive at the GDP. 

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