What is the definition of national income? Explain the different methods for the measuring of National income or gross product.
Meaning of national income:- National income refers to the income earned by normal residents of a nation during a given period as a result of their productive services. It’s known as a national product.
Definition of national income:- According to Shapiro – National income is the sum of wages, rent, interest and profit which is received by residents of a nation in the form of income during their productive services.
In other words, anyone who pays his service for which he/she has received some money is known as his income. All residents of a nation who obtained income for his service during a particular period of time are included in national income.
This sum of all incomes received by all residents of a country is known as national income.what definition of national income says. We can understand now.
Methods of measuring national income or national product.
There are three methods through which we can measure national income or national product.
- Production Method
- Income Method
- Expenditure Method
1.Product Method :- It is a method through which total production of the country is measured during a given period. Which measures the national income. In other words any income which Generated through the production is called the product method.
Under product method three types of classification is done.
- Primary Sector:- This sector deals with production of natural resources as agricultural, allied activities, fishing and mining. All these produce goods by exploiting natural resources like land, water, forests and mines etc. Production of these goods are added into national income.
- Secondary Sector :- This sector deals with the manufacturing sector. In Which enterprise transforms one type of commodity into another type of commodity. Example – sugar from sugarcane.
- Tertiary Sector:- This sector deals with the service sector instead of product production. Example – Like Banking, transport and electricity.
2. Income Method :- This method measures national income throughout the payments and remuneration which is paid to the residents of the nation for their services paying.
- Service income:- This income is received in the form of rent, wages, interest and profit during the period. For Example:- Hotel, transport and insurance.
- Productive income :- This income is received in the form of labour, land, capital and enterprise. For Example:- Labour Engaged in manufacturing, Land used for commercial purpose and enterprise engaged in manufacturing goods.
- Net income from Abroad :- This income refers to the difference between the income received from abroad for rendering their service and income paid for the factor service rendered by non-residents in the domestic territory of a country.
- Operating income :- such income includes wages, rent, Interest and profit which can be derived from property and entrepreneurship. It is earned in both the private sector and government sector.
3. Expenditure Method :- This is also known as consumption method. Expenditure method is that method which measures the final expenditure on gross product at market price in an accounting year. This expenditure can be incurred by following groups :
- Household Sector :- This sector includes private consumption. In which any individual spent on his consumption. This expense is treated as personal expenditure. Which he incurred on final consumption. In which purchases of non-residents are deducted and direct purchases of residents from abroad are added to national income.
- Government Final Expenditure:- And expense which is incurred on final consumption of government. This includes employees compensation which is paid by the government. Purchases from abroad are also added. Expenditure incurred for the welfare of the nation is also added on the final consumption of the government.
- Production Sector:- This sector includes the expenses which are incurred on production. Such types of expenses are incurred on raw material, labour and direct expenses. Which firms are engaged in manufacturing business.
- Net Exports :- Finally net exports are calculated by ( Export – Import ) statisticians for the purpose of measuring national income. In which all expenditure incurred on Export is calculated and from which expenditure incurred on import is deducted. After which Net export is derived.
Conclusion :- Thus above discussed methods are used in the way of measuring national income. As Production methods, Income Method and Expenditure Method. These are the farthest states of national income. Now we can understand which method of measuring national income is followed in india.
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