In particular, the increase or decrease in inventory is added to or subtracted from it. Corporate profit tax that is, tax on income of the companies should not be separately included as it has already been included as a part of profits. Chapter 1; heading: Brief history of economic accounts retrieved November 2009. According to this method the incomes received by the factors of agents of production of a country for their productive' services during a year are added up to compute national income. Higher real per capita income 2. The income of these individuals are called mixed incomes and are also accounted for calculating the national income.
The imported goods are not produced within the country and hence cannot be included in national income, but the exported goods are manufactured within the country. However the terms are used loosely. If they are final goods, then only they would be included in national income. She is not paid for them and her services are not including in national income. There is no accurate information available regarding consumption, investment expenditure and savings of either rural or urban population. Mixed income also takes into account the income of those individuals who earn from different sources, such as wages rents on own property, and interests on own money. In other words, value-added method measures value added by each industry in an economy.
The weights used were based on estimates made every 5 years, but, from 2003, an annual adjustment to the weightings was introduced to improve the reliability of the weighting - a process called annual chain linking. Personal income differs from private income in that it is less than the latter because it excludes undistributed corporate profits. Price Changes: National income by product method is measured by the value of final goods and services at current market prices. In national income accounting, the term rent is restricted to land and not to other goods, such as machinery. What are the strengths and weaknesses of each method of measurement? This avoids an issue often called '', wherein the total value of a good is included several times in national output, by counting it repeatedly in several stages of production. Definitions of National Income : The definitions of national income can be grouped into two classes: One, the traditional definitions advanced by Marshall, Pigou and Fisher; and two, modern definitions. Domestic income includes: i Wages and salaries, ii rents, including imputed house rents, iii interest, iv dividends, v undistributed corporate profits, including surpluses of public undertakings, vi mixed incomes consisting of profits of unincorporated firms, self- employed persons, partnerships, etc.
Expenditure Method: This method focuses on goods and services produced within the country during one year. Therefore, disposable income is divided into consumption expenditure and savings. These three components are excluded from national income because they do reach individuals. Difficulties in Calculation of National Income In India there are various difficulties in calculating the national incomes. Main article: Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation. There is always the possibility of including a good or service more than once, whereas only final goods are included in national income estimates. Besides, it cannot be said with certainty that the overcoat will last only for ten years.
Real term values help to compare the value of national output over time eliminating the monetary effects of inflation. If we add net income from abroad to domestic income, we get national income, i. Precautions: While estimating Gross Domestic Product through expenditure method or measuring final expenditure on Gross National Product, the following precautions should be taken: 1. The expenditure on them is regarded as final consumption expenditure because it is not possible to measure their used up value for the subsequent years. Hence, they are called leakages from the circular flow. Which one is a better measure? Now the general level of prices of the given year for which the national income real is to be determined is assessed in accordance with the prices of the base year.
Transfer payments like unemployment relief, sickness benefit old age pensions and unemployment relief should not be included. The value of output can be calculated by multiplying quantity of output produced by a production unit during a given time period with price per unit. It is the value that can be calculated straight by using the above three methods. In other words, this method measures national income at the phase of distribution and appears as income paid and or received by individuals of the country. The imputed net rent is calculated as that portion of the amount that would have accrued to the house-owner after deducting all expenses. The procedure is to take changes in physical units of inventories for the year valued at average current prices paid for them.
Approaches to calculating national income can be explained as follows: Output Approach This is where the output of each sector is summed up to calculate the total output of the economy. Statistical information regarding agriculture and allied occupations, and household enterprises is not available. The additions include transfer payments such as pensions, unemployment allowances, sickness and other social security benefits, gifts and remittances from abroad, windfall gains from lotteries or from horse racing, and interest on public debt. Thus, by deducting the opening stock from the closing stock, unsold output of the current year can be calculated. The more that workers are needed the higher the wage rate. But when the total output of an economy is to be ascertained, we have to express them not in physical terms but in monetary terms.
In India the Central Statistical Organization has been formulating national income. Because of self-employment nature of the business it is difficult to separate wages for the work done by the self-employed from the surplus or profits made by them. In common parlance, national income means the total value of goods and services produced annually in a country. But actually the calculations often have to be income or expenditure bases and we have very limited information on some sectors as no-one collects the data. This includes wages from employment and self-employment, profits to firms, interest to lenders of capital and rents to owners of land.
For example, a peasant sells wheat worth Rs. Census of income method broadly is comprised of a Compensation of employees b Interest c Rent d Profits and dividends e mixed income of self employed. Most of all the data is not meant for national income accounting, it is a by-product of other institutions and can thus be inadequate in several cases. Counting the final output of both industries will result in double-counting of the value of tyre. 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.