# Ways of measuring national income. 2.1.1 Measures of National Income Flashcards 2019-02-23

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## National Income and Measurement

Since L must always ultimately equal J it is a circular flow. 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. However, this is a typical profile for a developed economy â€” the more developed the economy the more that income is allocated towards purchasing services rather than manufactured goods. This is not true of private income. Although some attempts were made to estimate national incomes as long ago as the 17th century, the systematic keeping of , of which these figures are a part, only began in the 1930s, in the United States and some European countries.

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## Methods for Measuring National Income

This is acceptable to economists, because, like income, the total value of all goods is equal to the total amount of money spent on goods. These include the work of housewives. Simply add the required resources to your cart, checkout using the usual options and your resources will be available to access immediately via your. The cost estimates are then deducted from the sectoral gross output to obtain the net sectoral products. Therefore, expenditure method is generally not used for estimating national income. A greatest difficulty in the measurement of national income in the developing countries is general lack of adequate statistical data. These costs are deducted from the gross value to arrive at national income.

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## Explain the difference between the three main methods of calculating national income

Compensation of employees :Labour Income:This is the reward or compensation paid to employees for rendering productive services. Measurement of national income through income method involves the following main steps: 1. Under this method, the economy is divided into different industrial sectors such as agriculture, fishing, mining, construction, manufacturing, trade and commerce, transport, communication and other services. The market rents of similar properties are used as measuring rod for the imputed rents of premises occupied by their owners. It is so because a rise in prices increases the value of existing stocks even when there is no change in their volume. Stock Adjustment and Capital Gains and Losses: Finally, stock appreciation adjustment has to be made in order to eliminate the element of windfall gain in the profits received.

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## IB Economics/Macroeconomics/Measuring National Income

And also the increasingly lucrative computer games industry. Thus, it is a partly of return to land and partly a return to capital. . The actual usefulness of a product its use-value is not measured â€” assuming the use-value to be any different from its market value. We have defined national income from the angle of product flows.

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## Measures of national income and output

Item number 3 is to be interpreted in a broad sense. National income is a measure of the total value of goods and services produced in a country over a given period, usually a year. This is done by holding prices constant from a starting measure, called the base year. National and Domestic Concepts The term national denotes that the aggregate under consideration represents the total income which accrues to the normal residents of a country due to their participation in world production during the current year. While economic activities generate flow of goods and services, on the one hand, they generate money flows, on the other, in the form of factor paymentsâ€”wages, interest, rent, profits, and earnings of self-employed. Value of money for all final goods and services is produced in an economy during a year.

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## Measuring National Income

One can however obtain an estimate of national income by summing up the private incomes after making necessary adjustments for the items excluded from the national income. However, availability of adequate and appropriate data is a relatively more important consideration is selecting a method of estimating national income. In case the objective is to analyse the factor-income distribution, the suitable method for measuring national income is the income method. In the value of final goods, value of intermediate goods is already included therefore we do not count value of intermediate goods in national income otherwise there will be double counting of value of goods. Danger of double counting :- We can avoid from this danger by the following ways : i We should add up the value of those goods which have reached to the final shape and are available for consumption, ie consider only the value of final goods and services. Accordingly, national income is supposed to originate from two primary factors, viz. Therefore, any of the three methods can be adopted to measure the national income.

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## Methods of measuring national income

Besides, earlier estimates were mostly for one year, only some estimates covered a period of 3 to 4 years. Under the second method, the following items are considered a Private consumer goods and services, b Private investment goods, c Public goods and services and, d Net investments from aboard. These open economics exchange goods and services with rest of the world. Thus, in order to avoid distortions caused by stock appreciation in an inflationary period, a correcÂ­tion has to be made to eliminate changes in the value of stocks due to price changes alone. What kinds of business decisions are influenced by the change in national income? These activities include agriculture, forestry, fishery, cattle breeding, horticulture, dairy farming, mining etc. In general, there are three important measures of national income, viz.

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## National income and national income identity

To avoid the problem of double or multiple counting we must either use the value added method or count the total value of all final products. 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. Under this method, national income is measured as the total sum of the factor payments received during a certain time period. These are also called nominal prices. Final goods are those goods which are directly consumed and not used in further production process. The receipts from the sale of second-hand goods should not be treated as a part of national income.

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## IB Economics/Macroeconomics/Measuring National Income

In short, national income is the value of all the final output of goods and services produced in one year. According to this method only the final goods and services are included and the intermediary goods and services are not taken into account. Therefore, national income is calculated by adding up the rent of land, wages and salaries of employees, interest on capital, profits of entrepreneurs including undistributed corporate profits and incomes of self-employed people. Their values were included in the year when they were produced. Further, people of foreign countries spend on the goods and services which a country exports to them. The general practice in estimating depreciation is to follow the usual business practice of depreciation accounting.

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## Methods of measuring national income

What are the strengths and weaknesses of each method of measurement? National Income: Definition, Concepts, and Methods of Measuring. Similarly, people of a country spend on imports of goods and services from other countries. Individuals earn incomes by contributing their own services and the services of their property such as land and capital to the national production. It is related to money income flows. However, countries adopting net-product method find some ways and means to calculate the deductible cost.

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