# Value added method of measuring national income. Why do all three methods of calculating the national income give the same value? 2019-01-07

Value added method of measuring national income Rating: 8,9/10 444 reviews

## Measurement of National Income output/product method, income method, expenditure method final product method, value added method

Alternatively, we could record the measure in 2003 prices. In short, certain goods and services may be provided by a person for himself or herself and it is very difficult to include these in calculations altogether. Calculate Net Domestic Product at Factor Cost by a Income method and b Production method from the following data All India 2011 Ans. Most of the statistics are old and collected on the basis of guesswork. Income from Abroad: What is the gross national product? It is that part of economic theory which deals with the individual parts of the economic system like individual households, individual firms, individual industries, etc. But it excludes the interest on war-loans, social security benefits and pensions.

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## What are the three methods of measuring national income?

Their income is called mixed income. It is study of the economy as a whole and its aggregates. Estimating cost of production is, however, a relatively more complicated and difficult task because of nonavailability of adequate and requisite data. In the reality an item called statistical discrepancy must often be used to average out the errors. Imports are automatically excluded since we only record the values added in this country. Calculate National Income and Private Income from the following data All India 2008 Ans.

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## Measuring Output Using GDP

The national income is, therefore, not merely an aggregation of the private incomes. This leads to over estimation of the value of goods and services produced. If the objective is to analyse the net output or value added, the net output method is more suitable. This is equal to the value of sales and the change in stock. Thirdly, we have to measure purchases of goods and services made in a year.

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Price Level Changes: Firstly, price level changes create complications. We have so far been concerned with microeconomic aspects of managerial economics. A more intuitive way to avoid double counting the value of intermediate goods in gross domestic product is to, rather than try to isolate only final goods and services, look at the value added for each good and service intermediate or not produced in an economy. Thus, there are three alternative methods of computing national income. This gives us the gross domestic product at market price. How should the following be treated while estimating National Income? The combination of methods again depends on the nature of data required and sectoral break-up of the available data. Expenditure Method By this method, the total sum of expenditures on the purchase of final goods and services produced during an accounting year within an economy is estimated to obtain the value of domestic income.

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## Product Method of National Income Homework Help in Macroeconomics

It can be classified into following components: i Compensation of employees ii Operating surplus rent, profit and interest iii Mixed income of self-employed 3. This he may get income partly from the office, partly from the college, partly from the business concern etc. Hence this method is employed along with other methods to arrive at the national income. Simple view of expenditures: In an economy, households receive wages that they then use to purchase final goods and services. Also explain, two alternative ways of avoiding the problem. Gross domestic fixed capital formation is the value of houses and other durables formed during a year; and value of physical increases in stocks and work in progress are also included.

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## 3 Alternative Methods Used for Measuring National Income

Likewise, item number 5 is the major part of the return to capital for the public sector. To this, we must add or from this we must subtract the net factor property. All goods which are meant either i for consumption by consumers or ii for investment by firms are called final goods. It deals with aggregates like national income, general price level and national output, etc. These estimates differ in coverage, concepts and methodology and are not comparable. Personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services.

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## Explain the difference between the three main methods of calculating national income

The pizza has many ingredients at different stages of the supply chain, for example tomato growers, dough, mushroom farmers plus the value created by Dominos themselves as they put the pizza together and get it to the consumer. The national income thus obtained is known as national income at factor cost. These costs are deducted from the gross value to arrive at national income. This is because bonds and shares are mere financial claims and do not represent expenditure on currently produced goods and services. Intermediate consumption which is the value of goods such as raw materials, fuels purchased from other firms 2. Giving reason, explain the treatment assigned to the following while estimating National Income All India 2011 i Social security contributions by employees. Again, expenditure can be made by private individuals and households or by government and business enterprises.

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## Methods of measuring National Income

Investment: Investment is expenditure on currently produced capital goods like plant and equipment and housing. Under this method, national income is measured as the total sum of the factor payments received during a certain time period. The value-added approach is also helpful when dealing with goods where some inputs to production are not produced in the same time period as the final output. Non-wage income refers to the income paid to the factors in the form of rent interest and profits. Let us consider an illustration to know clearly of this method. The output method is used for agriculture and manufacturing sectors, i. Many African countries in particular have trouble measuring the size of their relatively large subsistence economies and unrecorded economic activity.

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