1. NATIONAL INCOME AND
METHODS OF
MEASURING NATIONAL
INCOME
Presented by :SHABNUM SHABIR

2. Introduction
 National income refers to the aggregate money value of all final goods and
services resulting from the economic activities of the people of a country over
a period of one year .
 There are different identities of national income like GDP ,GNP ,NDP AND
NNP
.

3. Methods of measuring national income .
 Production of goods and services give rise to income ,income gives rise to
demand for good and services,demand gives rise to expenditure and
expenditure give rise to further production,thus there is circular flow of
income production and expenditure.
 On the basis of these three related flows national income can be looked at as
the flow of ,Goods and services or as the flow of income or as the foow of
expenditure on goods and services.in this way theree are three phases in
circular flow i.e
 Production.
 Distrubution(income).
 Expenditure.

4. Countinue:
 National income can be calculated at each phase.
 The economists has divided method of national income into three ways .
 Product method (value added method)
 Income method.
 Expenditure method(total outlay).

5. Product method:
 In this method national income is measured at production phase.
 There are two approaches for measuring national income at production phase.
 Final production approach .
 Value added approach.
 Final product approach: according to this method national income is calculated
in following steps .
1. GDP at market price.
2. Gdp at market price +net factor income from abroad =GNP(at market price ).
3. GNP –Deprication =NNP(MARKET PRICE).
4. NNP (MP) - INDIRECT TAXES +SUBSIDIES =NNP (FACTOR COST).
5. NNP(FC) is the national income of a country.
 In this approach the problem of double counting arises ,to avoid this value added approach is used .

6. Value added approach
 Value added method focuses on the value added to a product at each stage of
production .
 Value added =value of output – value of intermediate goods .

7. Income method:
 It is based on the incomes acquiring to the basic factor of production used in
producing national income.
 Factor of production:land , labour , capital, entrepreneurship.
 Income =rent +wages +interest+profit+mixed income (self employed )+govt
incomes + net incomes from abroad.

8. Expenditure method:
 Production =consumption
 National income is calculated by adding total expenditures by the final users
of good and services+addition to stock with the producers and distributers .
 Y =C + G +I(x-m)
 C= private final consumption expenditure or household consumption .
 G=govt final consumption expenditure.
 I=investment expenditure.
 X-m=net export.

9. Various items that are not included in
national income are as :
1. Income from illegal activities.
2. Black money .
3. Transfer payments.
4. Sale and purchase of second goods .
5. Services rendered by housewives.

10. Thank you