What are the Three Methods of National Income Calculation?

By Mandeep Kumar|Updated : October 11th, 2022

The three methods of National Income calculation are Product, Income, and Expenditure. The total amount of money made by all the citizens and businesses in a nation during a given period is known as National Income or Gross National Income. The total value of all goods and services generated within a given period can also be used to define national income. At present, there are several methods of determining national income.

Three Methods of National Income Calculation

The three most common approaches are the value-added method, the income method, and the expense method. The following three methods exist for computing national income:

  • Income Method
  • Product/Value-Added Method
  • Expenditure Method

Using the income method, national income is estimated as an inflow of factor income. The four main factors of production are labour, money, land, and enterprise. Wages and salaries are used to compensate labour, interest is used to compensate for money, rent is used to compensate for land, and profits are used to compensate business enterprises.

  • Using the product/value-added method, national income is calculated as the flow of products and services.
  • We estimate the monetary value of all finished goods and services produced in an economy in a year.
  • The phrase "final goods" describes products that are used for immediate consumption rather than for later manufacture.
  • National income is determined using the expenditure method as the flow of expenditure.
  • The total of all private consumption expenditure is known as Gross Domestic Product (GDP).
  • Considerations include government consumption spending, gross (public and private) capital formation, and net exports

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FAQs on Three Methods of National Income Calculation

  • Product, Income, and Expenditure are the three methods of National Income calculation. There are various ways to determine national income. The value-added method, the income method, and the spending method are the three most popular approaches.

  • National Income provides information about the state of the economy and paints a clear picture of how fast the economy is expanding. Statistics on national income can aid economists in developing economic policies for economic growth.

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