The following points highlight the top three methods for measuring the national income of a country. The methods are: 1. The Product Method 2. The Income Method 3. Gross National Expenditure Method.
Measuring National Income Method # 1. The Product Method:
Also known as the Inventory method or Commodity service method, it consists in finding out the market value of all final goods and services produced in a country during a given period.
We add up the net production of all the ‘industries’ in the economy. For this we either adopt the value-added approach or the final goods approach.
We find out the value added in different sectors: agriculture, mining, manufacturing, transportation, trade, finance and government, professional and other services. The total of these would give us net domestic product at factor cost classified by industrial origin. By adding net income from abroad to this total we get net national income at factor cost.
Measuring National Income Method # 2. The Income Method:
This method consists in adding together all the incomes accruing to the factors of production by way of payments in the form of wages, rents, interest and profits. The method gives us national income according to distributive shares.
The most important income share is that of labour. Labour is variously paid in the form of wages, salaries, supplements, compensations and in kind also. All these payments when aggregated give us the share of wages. The second share is that of capital rentals. To arrive at this we have to find out the net interest, rent, dividends, undistributed profits of corporations, profits earned by state enterprises and cooperatives.
Then the third share is the income of self – employed persons which may consist of wages, rent, interest or profit. When all the three shares are added we get net national income. Adding depreciation to it we get Gross National Income.
Measuring National Income Method # 3. Gross National Expenditure Method:
This method involves the addition of personal consumption expenditures, gross private domestic investment, state purchase of goods and services and net foreign investment. The aggregate gives GNP at market prices. Deducting depreciation from it gives NNP at market prices. Further deduction of indirect taxes gives us net national income at factor cost.
The three methods of measuring aggregate income given above need different types of statistics. Product method requires a census of manufactures and agricultural output. Income method can use personal taxes data and the financial statements of different enterprises.
Expenditure method requires extensive family – budget data. In developed economies such data are easily collected. Some countries therefore use all the three methods and thereby obtain national income estimates consistent with one another.