OMTEX CLASSES: What is national income. Explain how national income is measured by output method.

What is national income. Explain how national income is measured by output method.

Meaning: -National income is generally defined from three angles viz. From the point of view of production, distribution and disposition. This is because National Income is always viewed at National Income = National product = National Dividend = National Expenditure i.e NI=NP=ND=NE. As there are three views of National Income accordingly, there are three methods of estimating National Income. They are.
a)      Total Output (Production Method): - (also known as Value Added Method/Inventory Method)
b)     Total Income Method: - (also known as Dividend Method/Factor Cost Method)
c)      Total Expenditure Method: - (also known as Aggregate Outlay method)


1.      Total (aggregates) Output (Production Method): -The national income is calculated on the basis of the gross value of the final production of goods and services manufactured in various sectors. i.e., primary, secondary, and tertiary, during a given period of time.
·         The primary sector is further divided in sub-sectors like agriculture, forestry, fishing, etc.
·         The secondary sector is sub-divided into manufacturing, construction, gas, electricity, etc.
·         The tertiary sector is further divided into banking, transport, trade, communication, hotels, etc.
The national income is calculated as follows:-
ü  The value of all final goods and services produced in different sectors of the economy during a year estimated at market price.
ü  (plus)The Gross Value of all Capital goods i.e. Gross Investment in the economy during a year.
ü  (plus) The Value of services rendered by the government which is measured in terms of government expenditure on purchase of various gods and services.
ü  (plus)Net Income from Exports i.e., the difference between Exports (X) and Imports (M). This may be positive or negative.
ü  (plus) Net foreign Income (NFI), which is equal to (X) – (M) + (R – P). This may be positive or negative.
ü  (minus) Depreciation or Replacement Allowances or capital consumption in the country during a year.
ü  (minus) Indirect taxes (INT) collected by the government during a year.
ü  (Plus) value of substitutes given to consumers and producers during the year.