National Income

National Income

National income of a country is the sum total of all goods and services produced in the country during a year. National income is used to measure the economic status of the country and to analyze its economic growth. 

Methods of calculation of National Income

Income Method

In the Income method, total incomes of all individuals in an economy are considered to calculate the national income. Individuals earn incomes by contributing their own services and the services of their property such as land and capital to the national production.

National Income (NI) = Employee compensation + Corporate profits + Proprietors’ Income + Rental income + Net Interest

Product or Value Added Method

Also known as “Output Method”.

In the Output Method, national income is computed by adding the values of output produced or services rendered by the different sectors of the economy during the year. It is to be noted that while computing the values of output figures, only the value added by each firm in the production process is taken into account. Thus, this method makes use of the concept of Value-added.

Expenditure Method

It is also called ‘Total Outlay Method’.

This method assumes that the income earned by an individual is either spent on consumer goods/services or saved and invested.

National Income (NI) = Personal Consumption Expenditure (C) + Investments (I) + Government Expenditure (G) + Exports (X) – Imports (I)