{"id":4223,"date":"2020-03-30T11:58:19","date_gmt":"2020-03-30T11:58:19","guid":{"rendered":"https:\/\/commerceiets.com\/?p=4223"},"modified":"2020-03-30T11:58:19","modified_gmt":"2020-03-30T11:58:19","slug":"measurement-of-national-income","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/measurement-of-national-income\/","title":{"rendered":"MEASUREMENT OF NATIONAL INCOME"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_72 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#MEASUREMENT_OF_NATIONAL_INCOME\" title=\"MEASUREMENT\nOF NATIONAL INCOME\">MEASUREMENT\nOF NATIONAL INCOME<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#PRODUCT_METHOD\" title=\"PRODUCT METHOD\">PRODUCT METHOD<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#STEPS_INVOLVED_IN_PRODUCT_METHOD\" title=\"STEPS INVOLVED\nIN PRODUCT METHOD\">STEPS INVOLVED\nIN PRODUCT METHOD<\/a><ul class='ez-toc-list-level-5' ><li class='ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#a_Value_of_output\" title=\"(a)&nbsp;Value of output\">(a)&nbsp;Value of output<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#b_Value_of_intermediate_consumption\" title=\"(b)&nbsp;Value of intermediate consumption\">(b)&nbsp;Value of intermediate consumption<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#C_Consumption_of_fixed_capital\" title=\"(C)&nbsp;Consumption of fixed capital\">(C)&nbsp;Consumption of fixed capital<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#How_to_avoid_Double_Counting\" title=\"How to avoid Double Counting\">How to avoid Double Counting<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#Problems_in_Product_Method\" title=\"Problems in Product Method:\">Problems in Product Method:<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#INCOME_METHOD\" title=\"INCOME METHOD\">INCOME METHOD<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#FINAL_EXPENDITURE_METHOD\" title=\"FINAL EXPENDITURE METHOD\">FINAL EXPENDITURE METHOD<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#DIFFICULTIES_IN_MEASUREMENT_OF_NATIONAL_INCOME_IN_UNDER_DEVELOPED_COUNTRIES\" title=\"DIFFICULTIES IN MEASUREMENT OF NATIONAL INCOME IN UNDER DEVELOPED COUNTRIES\">DIFFICULTIES IN MEASUREMENT OF NATIONAL INCOME IN UNDER DEVELOPED COUNTRIES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/#IMPORTANCE_OF_NATIONAL_INCOME_ANALYSIS\" title=\"IMPORTANCE OF NATIONAL INCOME ANALYSIS\">IMPORTANCE OF NATIONAL INCOME ANALYSIS<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\" id=\"measurement-of-national-income\"><span class=\"ez-toc-section\" id=\"MEASUREMENT_OF_NATIONAL_INCOME\"><\/span><strong>MEASUREMENT\nOF NATIONAL INCOME<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<p>National income is the total money value of goods and services produced by a country in a particular period of time. The duration of this period is usually one year.Measurement of <a rel=\"noreferrer noopener\" aria-label=\"National income (opens in a new tab)\" href=\"https:\/\/commerceiets.com\/national-income-in-india\/\" target=\"_blank\">National income<\/a> can be made by taking three viewpoints, namely production viewpoint, income viewpoint, and expenditure viewpoint.<\/p>\n\n\n\n<p><strong>Based on these viewpoints, there are three different methods of estimating national income which are as follows:<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"628\" height=\"243\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-123.png\" alt=\"\" class=\"wp-image-4225\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-123.png 628w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-123-300x116.png 300w\" sizes=\"auto, (max-width: 628px) 100vw, 628px\" \/><figcaption><strong>MEASUREMENT OF NATIONAL INCOME<\/strong><\/figcaption><\/figure>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"product-method\"><span class=\"ez-toc-section\" id=\"PRODUCT_METHOD\"><\/span><strong>PRODUCT METHOD<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Product method is also known as output method or value added\nmethod. In this method, we calculate the national income in terms of final\ngoods and services produced in an economy during a particular period of time.\nThe final goods are those which are either available to the consumers for\nconsumption or become a part of national wealth in the form of investment.<\/p>\n\n\n\n<p>Product method is that which estimates the national income by\nmeasuring the contribution of final output and services by each producing\nenterprise in the domestic territory of a country during a given accounting\nperiod.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"steps-involved-in-product-method\"><span class=\"ez-toc-section\" id=\"STEPS_INVOLVED_IN_PRODUCT_METHOD\"><\/span><strong>STEPS INVOLVED\nIN PRODUCT METHOD<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"660\" height=\"261\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-124.png\" alt=\"\" class=\"wp-image-4226\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-124.png 660w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-124-300x119.png 300w\" sizes=\"auto, (max-width: 660px) 100vw, 660px\" \/><figcaption><strong>MEASUREMENT OF NATIONAL INCOME<\/strong><\/figcaption><\/figure>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>STEP I: Classification of Productive Enterprises<\/strong><\/p>\n\n\n\n<p>The first step in this method of measuring national income is the classification of enterprises. All the productive enterprises in the economy are classified into three main categories.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"580\" height=\"250\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-125.png\" alt=\"\" class=\"wp-image-4227\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-125.png 580w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-125-300x129.png 300w\" sizes=\"auto, (max-width: 580px) 100vw, 580px\" \/><figcaption><strong>MEASUREMENT OF NATIONAL INCOME<\/strong><\/figcaption><\/figure>\n\n\n\n<p><strong>(i) Primary Sector<\/strong>&nbsp;\u2013 Primary sector refers to that sector of the economy which exploits natural resources to produce goods. Agriculture and allied activities like mining, quarrying, fishing, forestry etc. are included in this sector.<\/p>\n\n\n\n<p><strong>(ii) &nbsp;Secondary Sector \u2013&nbsp;<\/strong>The manufacturing sector of the economy which transforms one physical good into another is included in the secondary sector.<\/p>\n\n\n\n<p><strong>(iii)&nbsp;Tertiary Sector \u2013&nbsp;<\/strong>This includes banking, insurance, education, trade, commerce etc.<\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>STEP II: <\/strong><strong>Classification of Output<\/strong><\/p>\n\n\n\n<p>National output is classified into the following types:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"589\" height=\"340\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-126.png\" alt=\"\" class=\"wp-image-4228\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-126.png 589w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-126-300x173.png 300w\" sizes=\"auto, (max-width: 589px) 100vw, 589px\" \/><figcaption><strong>MEASUREMENT OF NATIONAL INCOME<\/strong><\/figcaption><\/figure>\n\n\n\n<p>(i)&nbsp;<strong>Consumer Goods<\/strong><em><strong>&nbsp;\u2013&nbsp;<\/strong><\/em>Consumer goods are those goods which help in the further\nproduction of consumer gods. These are also called are also called capital\ngoods.<\/p>\n\n\n\n<p>(ii)&nbsp;<strong>Producer Goods<\/strong><em><strong>&#8211;&nbsp;<\/strong><\/em>Producer gods are those goods which help in the further\nproduction of consumer gods. These are also called capital gods.<\/p>\n\n\n\n<p>(iii)&nbsp;<strong>Govt. Produced Goods<\/strong><em><strong>&#8211;&nbsp;<\/strong><\/em>These include defence, police, education, health care, roads,\nrailways, ports, dams etc.<\/p>\n\n\n\n<p>(iv)&nbsp;<strong>Net Exports<\/strong>&#8211; Net exports\nrefer to the value of goods and services exported to the rest of the world\nminus the value of goods &amp; services imported during an accounting year.<\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>STEP III: <\/strong><strong>Measurement of Value of Output<\/strong><\/p>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"a-value-of-output\"><span class=\"ez-toc-section\" id=\"a_Value_of_output\"><\/span>(a)&nbsp;<strong>Value of output<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<p>Here output means final goods as well as intermediate goods. The\nvalue of all these goods can be estimated by multiplying the quantity of output\nof each producing unit with the market price. This is equal to the value of\nsales and the change in stock.<\/p>\n\n\n\n<p>Value of output= Sales+ Change in stock<\/p>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"b-value-of-intermediate-consumption\"><span class=\"ez-toc-section\" id=\"b_Value_of_intermediate_consumption\"><\/span>(b)&nbsp;<strong>Value of intermediate consumption<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<p>The goods and services used by the firms as inputs are known as\nintermediate consumption. To calculate the value of intermediate consumption,\nwe have to multiply the intermediate goods with the prices paid by the\nenterprises to purchase these goods.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"c-consumption-of-fixed-capital\"><span class=\"ez-toc-section\" id=\"C_Consumption_of_fixed_capital\"><\/span>(C)&nbsp;<strong>Consumption of fixed capital<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<p>Consumption of fixed capital means depreciation. When goods are\nproduced, there is wear and tear of machines leading to the loss of value of\nthe capital assets. <\/p>\n\n\n\n<p><strong>Value of final output= Value of output- Value of\nintermediate goods<\/strong><\/p>\n\n\n\n<p>When we add the market value of final output in the primary\nsector, secondary sector and that of tertiary sector, we arrive at gross\ndomestic product at market price.<\/p>\n\n\n\n<p><strong>GDP at Market Price = Market value of final output of\nprimary sector + Market value of final output of tertiary sector + Market value\nof final output of tertiary sector.<\/strong> <\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>STEP IV: CALCULATION OF NATIONAL INCOME<\/strong><\/p>\n\n\n\n<p>From gross domestic product at market prices.\nThe national income is&nbsp; calculated by\ndeducting depreciation and net indirect taxes and adding net factor income from\nabroad.<\/p>\n\n\n\n<p><strong>National Income (NNP at Factor Cost)= GDP at market prices-Depreciation+ Net Factor Income from Abroad- Net Indirect taxes.<\/strong><\/p>\n\n\n\n<p>PROBLEM\nOF DOUBLE COUNTING<\/p>\n\n\n\n<p>Double counting means counting of the value\nof the same product (or expenditure) more than once.<\/p>\n\n\n\n<p>According to product or output method of\ncalculating national income, value of only final goods and services produced by\nall the production units of a country during a year should be counted. In other\nwords, value of intermediate goods which enter into final goods (e.g., paper\nused in printing of books, raw cotton used in garments, wheat used in making\nbread, etc.) should not be taken into account.<\/p>\n\n\n\n<p>But in actual practice, while taking value of final\ngoods, value of intermediate goods also gets included because every producer\ntreats the commodity he sells as final product irrespective of whether it is\nused as intermediate or final good. For instance, while taking value of final\ngoods like cycles, the value of tyres, tubes, frames, bells, etc. (intermediate\ngoods) used in manufacturing these cycles also gets included inadvertently<\/p>\n\n\n\n<p>In this way certain items are counted more than once resulting\nin over-estimation of national product to the extent of the value of\nintermediate goods included. This is called the problem of double counting\nwhich means counting value of the same commodity more than once.<\/p>\n\n\n\n<p>EXAMPLE: Presume that in an economy, there are only four\nproduction units (or firms) engaged in production of garments (ready-made\nclothes like shirts, pants, etc.).<\/p>\n\n\n\n<p>Firm A produces raw cotton, assuming though\nunrealistically that it uses no intermediate inputs and sells it for Rs 1,000\nto firm B. Firm B converts it into cotton yarn and sells it for Rs 1,500 to\nfirm C. Firm C manufactures cotton cloth and sells it for Rs 2,200 to firm D.\nFirm D produces garments and sells them for Rs 3,500 to final consumers.<\/p>\n\n\n\n<p>The total value of all these transactions or gross output\nis Rs 8,200 (= 1,000 + 1,500 + 2,200 4- 3,500) in which raw cotton has been\ncounted four times, cotton yarn three times and cotton cloth two times. On the\ncontrary, value of final goods (garments) which the economy has produced is t 3,500.\nThus, while calculating national income, if we take into account Rs 8,200\n(value of final as well as intermediate goods), it will be a case of double\ncounting and duplication.<\/p>\n\n\n\n<p>Actually only Rs 3,500 should be counted since the\neconomy has produced final goods worth Rs 3,500 and not worth Rs 8,200. It is,\ntherefore, essential that the element of double counting erupting in final\nproduct approach should be avoided. The problem of double counting is solved by\nValue added approach according to which chances of double counting are\nautomatically eliminated.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"how-to-avoid-double-counting\"><span class=\"ez-toc-section\" id=\"How_to_avoid_Double_Counting\"><\/span><strong>How to avoid Double Counting<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Theoretically, we may say that there may be two\nalternative ways of avoiding double counting, namely, <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Final product approach and <\/li><li>Value added approach. <\/li><\/ul>\n\n\n\n<p>But in actual practice, double counting still occurs\nunintentionally in final product approach because every producer treats the\nproduct he sells as a final product though the same might have been used by the\nbuyer as an intermediate product.<\/p>\n\n\n\n<p>Therefore this problem is perfectly solved by value added\nmethod. According to this method, instead of taking value of final products,\nvalue added by each firm at each stage of production is included.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-130-1.png\" alt=\"\" class=\"wp-image-4244\"\/><figcaption><strong>MEASUREMENT OF NATIONAL INCOME<\/strong><\/figcaption><\/figure>\n\n\n\n<p>Clearly, value added by all the four firms is Rs 3,500\ncomprising Rs 1,000 by A + Rs 500 by B + Rs 700 by C + Rs 1,300 by D. There is\nno scope for double counting in this method. Thus, to avoid double counting,\nthe value added method, also known as industry of origin method, is used in\ncomputation of national income. It is worth mentioning that total value added\nis equal to value of final product.<\/p>\n\n\n\n<p>In the above example, total value added is Rs 3,500 and the\nvalue of final product (final garments sold to consumers) is also Rs 3,500. <\/p>\n\n\n\n<h4 class=\"has-text-align-center wp-block-heading\" id=\"problems-in-product-method\"><span class=\"ez-toc-section\" id=\"Problems_in_Product_Method\"><\/span><strong>Problems in Product Method:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p><strong>The following problems arise in\nthe computation of national income by product method:<\/strong><\/p>\n\n\n\n<p><strong>1. Services of Housewives:<\/strong><\/p>\n\n\n\n<p>The estimation of the unpaid services of the housewife in\nthe national income presents a serious difficulty. A housewife renders a number\nof useful services like preparation of meals, serving, tailoring, mending,\nwashing, cleaning, bringing up children, etc.<\/p>\n\n\n\n<p>She is not paid for them and her services are not\nincluding in national income. Such services performed by paid servants are\nincluded in national income. The national income is, therefore, underestimated\nby excluding the services of a housewife.<\/p>\n\n\n\n<p>The reason for the exclusion of her services from national\nincome is that the love and affection of a housewife in performing her domestic\nwork cannot be measured in monetary terms. That is why when the owner of a firm\nmarries his lady secretary, her services are not included in national income\nwhen she stops working as a secretary and becomes a housewife.<\/p>\n\n\n\n<p>When a teacher teaches his own children, his work is also\nnot included in national income. Similarly, there are a number of goods and\nservices which are difficult to be assessed in money terms for the reason\nstated above, such as painting, singing, dancing, etc. as hobbies.<\/p>\n\n\n\n<p><strong>2.&nbsp;Intermediate and Final\nGoods:<\/strong><\/p>\n\n\n\n<p>The greatest difficulty in estimating national income by\nproduct method is the failure to distinguish properly between intermediate and\nfinal goods. There is always the possibility of including a good or service\nmore than once, whereas only final goods are included in national income\nestimates. This leads to the problem of double counting which leads to the\noverestimation of national income.<\/p>\n\n\n\n<p><strong>3.&nbsp;Second-hand\nGoods and Assets:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/strong><\/p>\n\n\n\n<p>Another problem arises with regard to the sale and\npurchase of second-hand goods and assets. We find that old scooters, cars,\nhouses, machinery, etc. are transacted daily in the country. But they are not\nincluded in national income because they were counted in the national product\nin the year they were manufactured.<\/p>\n\n\n\n<p>If they are included every time they are bought and sold,\nnational income would increase many times. Similarly, the sale and purchase of\nold stocks, shares, and bonds of companies are not included in national income\nbecause they were included in national income when the companies were started\nfor the first time. Now they are simply financial transactions and represent\nclaims.<\/p>\n\n\n\n<p>But the commission or fees charged by the brokers in the\nrepurchase and resale of old shares, bonds, houses, cars or scooters, etc. are\nincluded in national income. For these are the payments they receive for their\nproductive services during the year.<\/p>\n\n\n\n<p><strong>4.&nbsp;Illegal Activities:<\/strong><\/p>\n\n\n\n<p>Income earned through illegal activities like gambling,\nsmuggling, illicit extraction of wine, etc. is not included in national income.\nSuch activities have value and satisfy the wants of the people but they are not\nconsidered productive from the point of view of society. But in countries like\nNepal and Monaco where gambling is legalised, it is included in national\nincome. Similarly, horse-racing is a legal activity in England and is included\nin national income.<\/p>\n\n\n\n<p><strong>5.&nbsp;Consumers\u2019 Service:<\/strong><\/p>\n\n\n\n<p>There are a number of persons in society who render services\nto consumers but they do not produce anything tangible. They are the actors,\ndancers, doctors, singers, teachers, musicians, lawyers, barbers, etc. The\nproblem arises about the inclusion of their services in national income since\nthey do not produce tangible commodities. But as they satisfy human wants and\nreceive payments for their services, their services are included as final goods\nin estimating national income.<\/p>\n\n\n\n<p><strong>6.&nbsp;Capital Gains:<\/strong><\/p>\n\n\n\n<p>The problem also arises with regard to capital gains.\nCapital gains arise when a capital asset such as a house, some other property,\nstocks or shares, etc. is sold at higher price than was paid for it at the time\nof purchase. Capital gains are excluded from national income because these do\nnot arise from current economic activities. Similarly, capital losses are not\ntaken into account while estimating national income.<\/p>\n\n\n\n<p><strong>7.&nbsp;Inventory Changes:<\/strong><\/p>\n\n\n\n<p>All inventory changes (or changes in stocks) whether\npositive or negative are included in national income. The procedure is to take\nchanges in physical units of inventories for the year valued at average current\nprices paid for them.<\/p>\n\n\n\n<p>The value of changes in inventories may be positive or\nnegative which is added or subtracted from the current production of the firm.\nRemember, it is the change in inventories and not total inventories for the\nyear that are taken into account in national income estimates.<\/p>\n\n\n\n<p><strong>8.&nbsp;Depreciation:<\/strong><\/p>\n\n\n\n<p>Depreciation is deducted from GNP in order to arrive at\nNNP. Thus depreciation lowers the national income. But the problem is of\nestimating the current depreciated value of, say, a machine, whose expected\nlife is supposed to be thirty years. Firms calculate the depreciation value on\nthe original cost of machines for their expected life. This does not solve the\nproblem because the prices of machines change almost every year.<\/p>\n\n\n\n<p><strong>9.&nbsp;Price Changes:<\/strong><\/p>\n\n\n\n<p>National income by product method is measured by the\nvalue of final goods and services at current market prices. But prices do not\nremain stable. They rise or fall. When the price level rises, the national\nincome also rises, though the national production might have fallen.<\/p>\n\n\n\n<p>On the contrary, with the fall in the price level, the national income also falls, though the national production might have increased. So price changes do not adequately measure national income. To solve this problem, economists calculate the real national income at a constant price level by the consumer price index.<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"income-method\"><span class=\"ez-toc-section\" id=\"INCOME_METHOD\"><\/span><strong>INCOME METHOD<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Income method, also known as factor income method, is used to calculate all income accrued to the basic factors of production used in producing national product. Traditionally, there are four factors of production, namely land, labor, capital, and organization. Accordingly there are four factor payments, namely rent, compensation of employees, interest, and profit. There is another category of factor payment called mixed income.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"662\" height=\"340\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-127.png\" alt=\"\" class=\"wp-image-4229\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-127.png 662w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-127-300x154.png 300w\" sizes=\"auto, (max-width: 662px) 100vw, 662px\" \/><figcaption><strong>MEASUREMENT OF NATIONAL INCOME<\/strong><\/figcaption><\/figure>\n\n\n\n<p><strong>These factor payments are\nexplained as follows:<\/strong><\/p>\n\n\n\n<p><strong>(a) Rent:<\/strong><\/p>\n\n\n\n<p>Refers to the amount payable in cash or in kind by a tenant to the landlord for using land. In national income accounting, the term rent is restricted to land and not to other goods, such as machinery.<\/p>\n\n\n\n<p>In addition to rent, royalty is also included in national\nincome which is defined as the amount payable to landlord for granting the\nleasing rights of assets that can be extracted from land, for example, coal and\nnatural gas.<\/p>\n\n\n\n<p><strong>(b) Compensation of Employees:<\/strong><\/p>\n\n\n\n<p>Refer to the remuneration paid to employees in exchange\nof services rendered by them for producing goods and services.<\/p>\n\n\n\n<p><strong>Compensation of employees is\ndivided into two parts, which are as follows:<\/strong><\/p>\n\n\n\n<p><strong>(i) Wages and salaries:<\/strong><\/p>\n\n\n\n<p>Include remuneration given in the form of cash to\nemployees on a daily, weekly, or monthly basis. It includes allowances, such as\nconveyance allowance, bonuses, commissions, rent-free accommodation, loans on\nlow interest rates, and medical and educational expenses.<\/p>\n\n\n\n<p><strong>(ii) Social security\ncontribution:<\/strong><\/p>\n\n\n\n<p>Includes remuneration provided to employers in the form\nof social security schemes such as insurance, pensions, and provident fund.<\/p>\n\n\n\n<p><strong>(c) Interest:<\/strong><\/p>\n\n\n\n<p>Refers to the amount payable by the production unit for\nusing the borrowed money. Generally, production units borrow for making\ninvestment and households borrow for meeting consumption expenditure.<\/p>\n\n\n\n<p>In national income accounting, interest is restricted to\nthe payment by production units. If production units use their own savings,\nthen the interest is payable to them in the form of imputed interest.<\/p>\n\n\n\n<p><strong>(d) Profits:<\/strong><\/p>\n\n\n\n<p>This refers to the amount of money earned by the owner of\na production unit for his\/her entrepreneurial abilities. The profits are\ndistributed by the production unit under three heads. First is by paying income\ntax, called corporate profit tax.<\/p>\n\n\n\n<p>Second is by paying dividend to shareholder. Third is the\nretained earnings called undistributed profits. Thus, profit Is the sum total\nof corporate profit tax, dividend, and retained earnings.<\/p>\n\n\n\n<p><strong>(e) Mixed Income:<\/strong><\/p>\n\n\n\n<p>Refers to earnings from farming enterprises, sole\nproprietorships, and other professions, such as medical and legal practices. In\nthese professions, owners themselves assume the role of an entrepreneur,\nfinancier, worker and landlords. Mixed income also takes into account the\nincome of those individuals who earn from different sources, such as wages\nrents on own property, and interests on own money.<\/p>\n\n\n\n<p>Therefore,<\/p>\n\n\n\n<p><strong>National Income= Rent + Wages + Interest + Profit + Mixed Income<\/strong><\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>STEPS INVOLVED IN INCOME METHOD:<\/strong><\/p>\n\n\n\n<p><strong>These steps are as follows:<\/strong><\/p>\n\n\n\n<p>1. Classifying the production units into primary,\nsecondary, and tertiary sectors.<\/p>\n\n\n\n<p>2. Estimating Net Value Added of each sector. The sum\ntotal of the factor payments equals net value added.<\/p>\n\n\n\n<p>3. The sum of value added of all the sectors is&nbsp; known as NDP at Factor Cost.<\/p>\n\n\n\n<p>NVA = NDP at Factor Cost<\/p>\n\n\n\n<p>4. Estimating NFIA and adding it to NDP at Factor Cost,\nwhich gives NNP at Fcator Cost (national income).<\/p>\n\n\n\n<p>NDP at factor Cost + NFIA = National Income (NNP at\nFactor Cost)<\/p>\n\n\n\n<p><strong>The following are the\nprecautions that should be taken into consideration while calculating national\nincome using the income method:<\/strong><\/p>\n\n\n\n<p>a. Including the imputed value of factor services\nrendered by the owners of production units themselves. For example, if\nproduction units use their own savings for production, then the interest is\npayable to them in the form of imputed interest. This imputed interest should\nbe added in the calculation of national income.<\/p>\n\n\n\n<p>b. Avoiding the inclusion of transfer payments, such as\ngifts, donations and taxes.<\/p>\n\n\n\n<p>c. Excluding the gains that arise from the sales of\npre-owned goods. These gains are called capital gains.<\/p>\n\n\n\n<p>d. Excluding the income arising from sale of financial\nassets, such as shares and debentures. This is not related to the production of\ngoods and services. However, national income includes the value of services\nrendered by the agents in selling these financial assets.<\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>Problems in Income Method<\/strong><\/p>\n\n\n\n<p><strong>The following problems arise in\nthe computation of National Income by income method:<\/strong><\/p>\n\n\n\n<p><strong>1.&nbsp;Owner-occupied Houses:<\/strong><\/p>\n\n\n\n<p>A person who rents a house to another earns rental\nincome, but if he occupies the house himself, will the services of the house-owner\nbe included in national income. The services of the owner-occupied house are\nincluded in national income as if the owner sells to himself as a tenant its\nservices.<\/p>\n\n\n\n<p>For the purpose of national income accounts, the amount\nof imputed rent is estimated as the sum for which the owner-occupied house\ncould have been rented. The imputed net rent is calculated as that portion of\nthe amount that would have accrued to the house-owner after deducting all\nexpenses.<\/p>\n\n\n\n<p><strong>2.&nbsp;Self-employed Persons:<\/strong><\/p>\n\n\n\n<p>Another problem arises with regard to the income of\nself-employed persons. In their case, it is very difficult to find out the\ndifferent inputs provided by the owner himself. He might be contributing his\ncapital, land, labour and his abilities in the business. But it is not possible\nto estimate the value of each factor input to production. So he gets a mixed\nincome consisting of interest, rent, wage and profits for his factor services.\nThis is included in national income.<\/p>\n\n\n\n<p><strong>3.&nbsp;Goods meant for\nSelf-consumption:<\/strong><\/p>\n\n\n\n<p>In under-developed countries like India, farmers keep a\nlarge portion of food and other goods produced on the farm for\nself-consumption. The problem is whether that part of the produce which is not\nsold in the market can be included in national income or not. If the farmer\nwere to sell his entire produce in the market, he will have to buy what he\nneeds for self-consumption out of his money income. If, instead he keeps some\nproduce for his self-consumption, it has money value which must be included in\nnational income.<\/p>\n\n\n\n<p><strong>4.&nbsp;Wages and Salaries paid\nin Kind:<\/strong><\/p>\n\n\n\n<p>Another problem arises with regard to wages and salaries\npaid in kind to the employees in the form of free food, lodging, dress and\nother amenities. Payments in kind by employers are included in national income.\nThis is because the employees would have received money income equal to the\nvalue of free food, lodging, etc. from the employer and spent the same in\npaying for food, lodging, etc.<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"final-expenditure-method\"><span class=\"ez-toc-section\" id=\"FINAL_EXPENDITURE_METHOD\"><\/span><strong>FINAL EXPENDITURE METHOD<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Final expenditure method, also known as final product\nmethod, is used to measure final expenditures incurred by production units for\nproducing final goods and services within an economic territory during a given\ntime period.<\/p>\n\n\n\n<p>These expenditures are incurred on consumption and\ninvestment. This method is the opposite of the value-added method. This is\nbecause value-added method estimates national income from the sales side,\nwhereas the expenditure method calculates national income from the purchase\nside.<\/p>\n\n\n\n<p><strong>Final expenditure of an economy is divided into consumption expenditure and investment expenditure, which are explained as follows:<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"580\" height=\"301\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-128.png\" alt=\"\" class=\"wp-image-4230\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-128.png 580w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-128-300x156.png 300w\" sizes=\"auto, (max-width: 580px) 100vw, 580px\" \/><figcaption><strong>MEASUREMENT OF NATIONAL INCOME<\/strong><\/figcaption><\/figure>\n\n\n\n<p><strong>(a) Consumption Expenditure: <\/strong>It includes the following:<\/p>\n\n\n\n<p><strong>(i) Private Final Consumption Expenditure:<\/strong><\/p>\n\n\n\n<p>It includes expenditure incurred by households and\nexpenditure incurred by private non-profit institutions serving households. Households\nFinal Consumption Expenditure is defined as expenditures, both actual and\nimputed, incurred by a country\u2019s households on final goods and services for\nsatisfying their wants. In addition to actual money expenditure, Households Final\nConsumption Expenditure includes imputed value of goods and services received\nwithout incurring money expenditure, for example, self-consumed output and\ngifts received in kind.<\/p>\n\n\n\n<p>On the other hand, Private non-profit institutions\nserving households includes expenditure incurred by private charitable\ninstitutions, trade unions, and religious societies, which produce goods and\nservices to be supplied to consumers either free or at token prices.<\/p>\n\n\n\n<p><strong>(ii) Government Final\nConsumption Expenditure (GFCE):<\/strong><\/p>\n\n\n\n<p>It includes expenditure that is incurred by government\nfor providing free goods and services to citizens. It is equal to value of\noutput minus sales (GFCE = Value of Output \u2013 Sales).<\/p>\n\n\n\n<p><strong>The value of output is\ncalculated as:<\/strong><\/p>\n\n\n\n<p>Value of output generated by government = Compensation of\ngovernment employees + purchases of commodities and services + consumption of\nfixed capital<\/p>\n\n\n\n<p><strong>Sales by government = Commodity Sales + Non- Commodity Sales<\/strong><\/p>\n\n\n\n<p><strong>(b) Investment Expenditure:<\/strong><\/p>\n\n\n\n<p>Involves expenditure incurred on capital formation. This\nexpenditure is known as Gross Domestic Capital Formation.<\/p>\n\n\n\n<p>There are three components of Gross Domestic Capital Formation which are as follows:<\/p>\n\n\n\n<p><strong>(i) Acquisition of fixed\ncapital assets:<\/strong><\/p>\n\n\n\n<p>Implies purchasing assets, such as building and machinery.<\/p>\n\n\n\n<p><strong>(ii) Change in stocks:<\/strong><\/p>\n\n\n\n<p>Involves making addition to the stock of raw materials,\nsemi-finished goods, and finished goods.<\/p>\n\n\n\n<p><strong>(iii) Net acquisition of\nvaluables:<\/strong><\/p>\n\n\n\n<p>Involves acquisition of valuables minus disposal of\nvaluables. These valuables include precious stones, metals, and jewellery.<\/p>\n\n\n\n<p>Gross Domestic Capital Formation becomes net when it is\ndiminished by depreciation.<\/p>\n\n\n\n<p><strong>Net Domestic Capital Formation = Gross Domestic Capital Formation \u2013 depreciation<\/strong><\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>STEPS INVOLVED IN EXPENDITURE METHOD<\/strong><\/p>\n\n\n\n<p><strong>These steps are as follows:<\/strong><\/p>\n\n\n\n<p>1. Classifying the production units into primary,\nsecondary, and tertiary sectors.<\/p>\n\n\n\n<p>2. Estimating the final expenditures on goods and\nservices by industrial sectors. These expenditures are private final\nconsumption expenditure, government final consumption expenditure and\ninvestment expenditure. The expenditure also includes net exports, which are\nequal to exports minus imports.<\/p>\n\n\n\n<p>3. Taking the sum of the final expenditures which gives GDP at Market price.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"589\" height=\"216\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-129.png\" alt=\"\" class=\"wp-image-4231\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-129.png 589w, https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-129-300x110.png 300w\" sizes=\"auto, (max-width: 589px) 100vw, 589px\" \/><figcaption><strong>MEASUREMENT OF NATIONAL INCOME<\/strong><\/figcaption><\/figure>\n\n\n\n<p>4. Estimating the consumption of fixed capital and net\nindirect taxes to calculate NDPfc.<\/p>\n\n\n\n<p>NDP at Factor Cost = GDP at Market Prices \u2013 Consumption\nof Fixed Capital- Net Indirect Taxes<\/p>\n\n\n\n<p>5. Adding NFIA to get national income (NNPfc)<\/p>\n\n\n\n<p>NDPfc +NFIA = NNPfc<\/p>\n\n\n\n<p><strong>The following are the\nprecautions that should be taken into consideration while calculating national\nincome using the final expenditure method:<\/strong><\/p>\n\n\n\n<p>a. Excluding the intermediate expenditure as it is\nalready a part of final expenditure<\/p>\n\n\n\n<p>b. Including the imputed expenditure incurred for\nproducing goods for self-consumption<\/p>\n\n\n\n<p>c. Excluding the expenditure incurred on transfer\npayments<\/p>\n\n\n\n<p>d. Excluding expenditure incurred on financial assets,\nsuch as shares and debentures<\/p>\n\n\n\n<p>e. Excluding the expenditure incurred on pre-owned goods<\/p>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>Problems in Expenditure Method:<\/strong><\/p>\n\n\n\n<p><strong>The following problems arise in\nthe calculation of national income by expenditure method:<\/strong><\/p>\n\n\n\n<p><strong>(1) Government Services:<\/strong><\/p>\n\n\n\n<p>In calculating national income by, expenditure method,\nthe problem of estimating government services arises. Government provides a\nnumber of services, such as police and military services, administrative and\nlegal services. Should expenditure on government services be included in\nnational income?<\/p>\n\n\n\n<p>If they are final goods, then only they would be included\nin national income. On the other hand, if they are used as intermediate goods,\nmeant for further production, they would not be included in national income.\nThere are many divergent views on this issue.<\/p>\n\n\n\n<p>One view is that if police, military, legal and\nadministrative services protect the lives, property and liberty of the people,\nthey are treated as final goods and hence form part of national income. If they\nhelp in the smooth functioning of the production process by maintaining peace\nand security, then they are like intermediate goods that do not enter into\nnational income.<\/p>\n\n\n\n<p>In reality, it is not possible to make a clear\ndemarcation as to which service protects the people and which protects the\nproductive process. Therefore, all such services are regarded as final goods\nand are included in national income.<\/p>\n\n\n\n<p><strong>(2) Transfer Payments:<\/strong><\/p>\n\n\n\n<p>There arises the problem of including transfer payments\nin national income. Government makes payments in the form of pensions,\nunemployment allowance, subsidies, interest on national debt, etc. These are\ngovernment expenditures but they are not included in national income because\nthey are paid without adding anything to the production process during the\ncurrent year.<\/p>\n\n\n\n<p>For instance, pensions and unemployment allowances are\npaid to individuals by the government without doing any productive work during\nthe year. Subsidies tend to lower the market price of the commodities. Interest\non national or public debt is also considered a transfer payment because it is\npaid by the government to individuals and firms on their past savings without\nany productive work.<\/p>\n\n\n\n<p><strong>(3) Durable-use Consumers\u2019\nGoods:<\/strong><\/p>\n\n\n\n<p>Durable-use consumers\u2019 goods also pose a problem. Such\ndurable-use consumers\u2019 goods as scooters, cars, fans, TVs, furniture\u2019s, etc.\nare bought in one year but they are used for a number of years. Should they be\nincluded under investment expenditure or consumption expenditure in national\nincome estimates? The expenditure on them is regarded as final consumption\nexpenditure because it is not possible to measure their used up value for the\nsubsequent years.<\/p>\n\n\n\n<p>But there is one exception. The expenditure on a new\nhouse is regarded as investment expenditure and not consumption expenditure.\nThis is because the rental income or the imputed rent which the house-owner\ngets is for making investment on the new house. However, expenditure on a car\nby a household is consumption expenditure. But if he spends the amount for\nusing it as a taxi, it is investment expenditure.<\/p>\n\n\n\n<p><strong>(4) Public Expenditure:<\/strong><\/p>\n\n\n\n<p>Government spends on police, military, administrative and\nlegal services, parks, street lighting, irrigation, museums, education, public\nhealth, roads, canals, buildings, etc. The problem is to find out which\nexpenditure is consumption expenditure and which investment expenditure is.<\/p>\n\n\n\n<p>Expenses on education, museums, public health, police, parks, street lighting, civil and judicial administration are consumption expenditure. Expenses on roads, canals, buildings, etc. are investment expenditure. But expenses on defence equipment are treated as consumption expenditure because they are consumed during a war as they are destroyed or become obsolete. However, all such expenses including the salaries of armed personnel are included in national income.<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"difficulties-in-measurement-of-national-income-in-under-developed-countries\"><span class=\"ez-toc-section\" id=\"DIFFICULTIES_IN_MEASUREMENT_OF_NATIONAL_INCOME_IN_UNDER_DEVELOPED_COUNTRIES\"><\/span><strong>DIFFICULTIES IN MEASUREMENT OF NATIONAL INCOME IN UNDER DEVELOPED COUNTRIES<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The estimation of national income in any country is a\nvery difficult task. But in under-developed countries like India, the\ndifficulties are particularly great.<\/p>\n\n\n\n<p><strong>The chief among them are as\nfollows:<\/strong><\/p>\n\n\n\n<p><strong>(i) Lack of Reliable\nStatistics:<\/strong><\/p>\n\n\n\n<p>The most serious handicap is the inade\u00adquacy,\nnon-availability and unreliability of statistics. Correct statistical infor\u00admation\nregarding agriculture and allied occupations is not available. There is also no\ninformation available regarding consumption, expenditure and savings of either\nrural or urban population. Besides, owing to regional diversities, statistics\navailable about one region cannot be used for another region.<\/p>\n\n\n\n<p><strong>(ii) Absence of Proper\nAccounts:<\/strong><\/p>\n\n\n\n<p>Illiteracy of the people and the absence of the practice\nof keeping accounts is the next. In western countries, economic statistics are\ncollected directly from individuals and enterprises. This is obviously not\npossible in India. Moreover, Indian people are by tradition suspicious and do\nnot co-operate in the collection of data.<\/p>\n\n\n\n<p><strong>(iii) Inability to Estimate:<\/strong><\/p>\n\n\n\n<p>Besides, most of the Indian producers are not capable of\nworking out the exact quantity and the value of their products. Thus, \u201can\nassessment of output, produced by self-employed agriculturists, small producers\nand owners of household enterprises in the un-organised sector, would require\nan element of guess work.\u201d<\/p>\n\n\n\n<p><strong>(iv) Unorganized Production:<\/strong><\/p>\n\n\n\n<p>For the most part, production, both agricul\u00adtural and\nindustrial, is unorganized and scattered. Thus, it does not admit of easy\ncalculation. This also applies to household crafts.<\/p>\n\n\n\n<p><strong>(v) Lack of proper\nClassification:<\/strong><\/p>\n\n\n\n<p>A major part of the Indian economy consists of household\nenterprises which perform simultaneously functions belonging to different\noccupational categories. Thus the usual industrial classification cannot be\nobserved.<\/p>\n\n\n\n<p><strong>(vi) Lack of Uniform Basis:<\/strong><\/p>\n\n\n\n<p>Another difficulty is the absence of a uniform basis\nwhich could be used for evaluating commodities and services in terms of money.\nThis is made more difficult by the fact that a considerable portion of the\noutput in India does not come into the market at all; it is either consumed by\nthe producers themselves or bartered for other commodities and services. The\nlarge unorganized and non-monetized sector of the Indian economy presents the\ngreat difficulty in national income calculations.<\/p>\n\n\n\n<p><strong>(vii) Lack of Common\nDenominator:<\/strong><\/p>\n\n\n\n<p>Lastly, there is the universal academic difficulty of\nreducing the numerous economic activities of millions of people to a common\nmeasurable denominator. For example, how to add together the services of a\nstreet sweeper and those of the Prime Minister?<\/p>\n\n\n\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"importance-of-national-income-analysis\"><span class=\"ez-toc-section\" id=\"IMPORTANCE_OF_NATIONAL_INCOME_ANALYSIS\"><\/span><strong>IMPORTANCE OF NATIONAL INCOME ANALYSIS<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>The national income data have\nthe following importance:<\/strong><\/p>\n\n\n\n<p><strong>1.&nbsp;For the Economy:<\/strong><\/p>\n\n\n\n<p>National income data are of great importance for the\neconomy of a country. These days the national income data are regarded as\naccounts of the economy, which are known as social accounts. These refer to net\nnational income and net national expenditure, which ultimately equal each\nother.<\/p>\n\n\n\n<p>Social accounts tell us how the aggregates of a nation\u2019s\nincome, output and product result from the income of different individuals,\nproducts of industries and transactions of international trade. Their main constituents\nare inter-related and each particular account can be used to verify the\ncorrectness of any other account.<\/p>\n\n\n\n<p><strong>2.&nbsp;National Policies:<\/strong><\/p>\n\n\n\n<p>National income data form the basis of national policies\nsuch as employment policy, because these figures enable us to know the\ndirection in which the industrial output, investment and savings, etc. change,\nand proper measures can be adopted to bring the economy to the right path.<\/p>\n\n\n\n<p><strong>3.&nbsp;Economic Planning:<\/strong><\/p>\n\n\n\n<p>In the present age of planning, the national data are of\ngreat importance. For economic planning, it is essential that the data\npertaining to a country\u2019s gross income, output, saving and consumption from\ndifferent sources should be available. Without these, planning is not possible.<\/p>\n\n\n\n<p><strong>4.&nbsp;Economic Models:<\/strong><\/p>\n\n\n\n<p>The economists propound short-run as well as long-run\neconomic models or long-run investment models in which the national income data\nare very widely used.<\/p>\n\n\n\n<p><strong>5.&nbsp;Research:<\/strong><\/p>\n\n\n\n<p>The national income data are also made use of by the\nresearch scholars of economics. They make use of the various data of the\ncountry\u2019s input, output, income, saving, consumption, investment, employment,\netc., which are obtained from social accounts.<\/p>\n\n\n\n<p><strong>6.&nbsp;Per Capita Income:<\/strong><\/p>\n\n\n\n<p>National income data are significant for a country\u2019s per\ncapita income which reflects the economic welfare of the country. The higher\nthe per capita income, the higher the economic welfare of the country.<\/p>\n\n\n\n<p><strong>7.&nbsp;Distribution of Income:<\/strong><\/p>\n\n\n\n<p>National income statistics enable us to know about the\ndistribution of income in the country. From the data pertaining to wages, rent,\ninterest and profits, we learn of the disparities in the incomes of different\nsections of the society. Similarly, the regional distribution of income is\nrevealed.<\/p>\n\n\n\n<p>It is only on the basis of these that the government can adopt measures to remove the inequalities in income distribution and to restore regional equilibrium. With a view to removing this personal and regional inequality, the decisions to levy more taxes and increase public expenditure also rest on national income statistics.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/demand\/\">Theory of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-demand\/\">Law of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/demand-function\/\">Demand Function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/exceptions-of-law-of-demand\/\">Exceptions of law of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/elasticity-of-demand\/\">Elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/change-in-demand\/\">Change in demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/price-elasticity-of-demand\/\">Price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-law-of-demand-and-elasticity-of-demand\/\">Law of demand Vs Elasticity of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/factors-affecting-price-elasticity-of-demand\/\">Factors affecting price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/production-function\/\">Production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-short-run-long-run-production-function\/\">Short run vs long run production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-variable-proportions\/\">Law of variable proportions<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/types-of-demand\/\">Types of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/managerial-economics\/\">Managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/characteristics-of-managerial-economics\/\">Characteristics of managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-managerial-economics\/\">Scope of managerial economics<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/utility-analysis\/\">Utility analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-marginal-utility\/\">Law of diminishing marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-equi-marginal-utility\/\">Law of equi marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium\/\">Consumers Equilibrium<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/indifference-curve-analysis\/\">Indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium-using-indifference-curve-analysis\/\">Consumer equilibrium using indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-tp-ap-and-mp\/\">Relationship between TP, AP and MP<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-increasing-returns\/\">Law of increasing returns<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-returns\/\">Law of diminishing returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/\">Law of constant returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/returns-to-scale\/\">Returns to Scale<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/economies-and-diseconomies-of-scale\/\">Economies and diseconomies of scale<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/concept-of-costs\/\">Concept of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/\">Relationship between AC and MC<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/traditional-theory-of-cost\/\">Traditional theory of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/modern-theory-of-cost\/\">Modern theory of costs<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explicit-vs-implicit-costs\/\">Explicit vs Implicit costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue\/\">Revenue<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-competition\/\">Perfect competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-meaning\/\">Monopoly<\/a>&nbsp;<\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/price-discrimination\/\">Price discrimination<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-perfect-competition-and-monopoly\/\">Difference between perfect competition and monopoly<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-and-monopolistic-competition\/\">Perfect Vs Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-and-monopolistic-competition\/\">Monopoly and monopolistic competition<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/product-differentiation-strategy\/\">Product differentiation strategy<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopolistic-competition\/\">Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/national-income-in-india\/\">National Income in India<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/\">Measurement of national income in India<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/consumption-function\/\">Consumption function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/keynesian-psychological-law-of-consumption\/\">Keynes Psychological law of consumption<\/a><\/td><td><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"266\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1024x266.jpg\" alt=\"MEASUREMENT OF NATIONAL INCOME\" class=\"wp-image-787\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1024x266.jpg 1024w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-300x78.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-768x199.jpg 768w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1536x398.jpg 1536w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize.jpg 1920w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption>MEASUREMENT OF NATIONAL INCOME<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>MEASUREMENT OF NATIONAL INCOME National income is the total money value of goods and services produced by a country in a particular period of time. The duration of this period is usually one year.Measurement of National income can be made by taking three viewpoints, namely production viewpoint, income viewpoint, and expenditure viewpoint. Based on these&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;MEASUREMENT OF NATIONAL INCOME&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":4232,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[113,92],"tags":[],"class_list":["post-4223","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-managerial-economics","category-micro-economics"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/4223","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=4223"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/4223\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/4232"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=4223"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=4223"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=4223"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}