Only government expenditure on currently produced goods and services is to be included. Necessary for devising proper economic policies : National income estimates inform the various changes that took place in the economy. The value added at each stage can now be allocated to various factors of production. In addition, from the value of the products of industries must be deducted the cost of raw materials and products and services provided by other industries. However, countries adopting net-product method find some means to calculate the deductible cost. Intermediate consumption which is the value of goods such as raw materials, fuels purchased from other firms 2. This allowed for a more up-to-date, and therefore a more accurate measure of changes to the level of national income.
All transfer expenditure is to be excluded to avoid double counting. Income product is equal to the sum of wages, salaries, supplementary labor incomes, interest, profits, and net rent paid or accrued. In this method, the production for self-consumption should be valued at the prevailing market prices. Factor-Income Method This method is also known as income method and factor-share method. It includes consumption of goods, gross investment, government expenditures on goods and services, and net exports.
Factor Cost Measure: National expenditure is measured at market prices. However, an imputed value is given to owner occupied houses and an estimate is made of the value of food consumed by farmers themselves. The expenditure method is based on the idea that all products are bought by somebody or some organisation. Expenditure Method of Measuring National Income National income can also be measured as sum of expenditure on final goods and services less depreciation of capital assets. National Incomes estimates reveal the changes in the standard of living of the people. Pigou and expenditure method by Dr.
This depreciation is to be treated as part of the gross return on capital. . This is why when we add up the values of all sales, the same output is counted again and again as it is sold by one firm to another. It is so because a rise in prices increases the value of existing stocks even when there is no change in their volume. The difference between the value of output and inputs at each stage of production is the value added.
The combined effect of higher wages and prices is that the nominal value of national output may be driven up, rather than its real value. These illegal forms of economic activity are not reported to the authority for tax purpose and are excluded from national income accounts. This is known as exhaustive expenditure. We have to exclude all the expenditure on intermediate goods and services. Continued enforcement by the revenue commissioners may deter people from engaging in the black economy.
Expenditure approach to national income is shown through bar diagram in Table 2. The Product Output Method 2. Income Approach In income approach, national income is measured as a flow of factor incomes. It is a quantitative concept and does not tell us anything about quality of goods and services produced. However, income received in the form of transfer payments are not included.
India is one of the highest receivers of private remittances. Such incomes are termed as mixed incomes. The impetus for that major statistical effort was the and the rise of , which prescribed a greater role for the government in managing an economy, and made it necessary for governments to obtain accurate information so that their interventions into the economy could proceed as well-informed as possible. But, the total output or income of society does not increase in the process. A recession is officially defined as a period of at least two consecutive quarters of negative output growth. From the value added by each enterprise we subtract consumption of fixed capital i. Expenditure Method: Expenditure method arrives at national income by adding up all expenditures made on goods and services during a year.
If second-hand goods are included, double-counting will occur, and this would falsely inflate the value of national income. This is done by holding prices constant from a starting measure, called the base year. However, if in year 3 110 pens are sold at £1. Of course, commission or brokerage earned in their sale and purchase has to be included because this is a new service rendered in the current year. This method is usually used in case of owner-occupied houses i.