Different measures of national income. Methods for Measuring National Income: 3 Methods 2019-02-03

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2.1.1 Measures of National Income Flashcards

different measures of national income

The net incomes earned by the factors of production in the form of rent, wage, interest and profit aggregated but incomes in the form of transfer payments are not included in the national income. Income approach to measurement of national income is shown through bar diagrams in Figure 2. Despite these limitations, the Gini coefficient has been used extensively in the public health literature, , , , and it remains the most popular measure of income inequality. We add up the following types of expenditure by households, government and by productive enterprises to obtain national income. Income equal to the value of production used for self-consumption should be estimated and included in the measure of national income. However, a number of alternative methods exist, and they offer researchers the means to develop a more nuanced understanding of the distribution of income.

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Measuring National Income

different measures of national income

Although national income accounting is not an exact science, it provides useful insight into how well an economy is functioning, and where are being generated and spent. Any discrepancy among the three measures is due to statistical error. Property income is income derived from the ownership of assets in the form of profits, interest and rent. Value of intermediate goods must not be counted while measuring value added because this will amount to double counting. Therefore, his index incorporates a sensitivity parameter ε ; which can range from 0 meaning that the researcher is indifferent about the nature of the income distribution , to infinity where the researcher is concerned only with the income position of the very lowest income group. However, this is a typical profile for a developed economy — the more developed the economy the more that income is allocated towards purchasing services rather than manufactured goods. All transfer expenditure is to be excluded to avoid double counting.

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Measuring National Income

different measures of national income

If in terms of market prices, then figures will be distorted by inflation even though national output may have remained the same. Output in different sectors: National income estimates are of great utility for knowing the level of output produced in different sectors like agriculture, industry, transport, business etc. The Product Output Method 2. A variety of strategies exist for the operationalisation of income inequality. The total output of the economy is the sum of the outputs of every industry. We may also refer to private transfer in this context. The Gini coefficient can be presented as a value between 0 and 1 or as a percentage.

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Advantages of Measuring National Income

different measures of national income

In India, for example, 1980-81 is taken as the base year. This method is usually used in case of owner-occupied houses i. However, income received in the form of transfer payments are not included. The receipts from the sale of second-hand goods should not be treated as a part of national income. Like the value added method, the first step in income method is also to identify the productive enterprises and then classify them into various industrial sectors such as agriculture, fishing, forestry, manufacturing, transport, trade and commerce, banking, etc. The theoretical range of Atkinson values is 0 to 1, with 0 being a state of equal distribution.

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2.1.1 Measures of National Income Flashcards

different measures of national income

It is so called because people can dispose it off as they wish. National income is the total value of goods and services produced in a country during a year. Compensation of employees :Labour Income:This is the reward or compensation paid to employees for rendering productive services. In other words, this method measures national income at the phase of distribution and appears as income paid and or received by individuals of the country. This is known as rounding-up error or residual error, i. These data are also used by central banks to set and adjust and affect the of interest that they set.

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2.1.1 Measures of National Income Flashcards

different measures of national income

The nominal value of national income, or any other aggregate, is the value of national output at the prices existing in the year that national income is measured - that is, at current prices. Factor Cost: The value of the national output is measured at factor cost, that is, in terms of the payments made to the factors of production for services rendered in producing that output. Imports are automatically excluded since we only record the values added in this country. The product method is the principal method used in underdeveloped economies, whereas income method is generally used in developed economics for the estimation of national income. Measuring national income at may overcome this problem at the risk of overvaluing basic goods and services, for example subsistence farming. The calculation is done by taking, for example, the income earned by the top 10% of households and dividing that by the income earned by the poorest 10% of households.

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Advantages of Measuring National Income

different measures of national income

Transactions which do not add value are called transfers, and include second-hand sales, gifts and welfare transfers paid by the government, such as disability allowance and state pensions. To overcome this, statistics are often expressed in terms of constant prices. Expenditure Method: Expenditure method arrives at national income by adding up all expenditures made on goods and services during a year. They help the government in understanding the causes and consequences of such changes. To avoid double-counting, the national income accounts only record the value of the final stage, which in this case is the selling price of £25,000.

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What is the significance of national income accounting or social accounting?

different measures of national income

The salaries of government school teachers and policemen are taken as a meas­ure of the values of their outputs. In India a good number of people are engaged in household industries, in family farms and other unorganised enterprises. Expenditure Method: In this method, national income is measured as a flow of expenditure. For example, Weich et al. This method takes into account only those goods and services that purchased and consumed by the final consumers in the economy. All the income generated in production does not find its way into personal incomes. International economic obligations : National income estimates are also useful for determining the contribution of the share of each country in the total expenses of United National Organization U.

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National Income

different measures of national income

In many countries, the data of production of only important industries are known. However, if in year 3 110 pens are sold at £1. Example For example, consider the production of a motor car which has a retail price of £25,000. By the help of national income accounting we can say whether a country agricultural or industrial 5 National income accounting throws light on the distribution of national income in an economy. Using a variety of income inequality measures would also help to temper the reductionist tendency of the quantitative paradigm, for the use of the measures outlined in this glossary requires the acknowledgement that income distributions cannot be perfectly summarised in a single number.


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Measuring National Income

different measures of national income

But, the total output or income of society does not increase in the process. This measure of income inequality can easily be calculated with a spreadsheet or data analysis program, and its intuitive appeal makes it an appropriate choice of income inequality measure for many audiences. Therefore, the incomes earned by them are mix of wages, rent, interest and profit and are, therefore, called mixed income of the self-employed. These can be categorized as private consumption expenditure, private investment, public consumption, public investment etc. They also inform the significance and contribution of different sectors to the national dividend.

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