1. Meaning

Measurement of National Income refers to estimating the money value of all final goods and services produced by normal residents of a country during a given period (usually one year).

2. Key Aggregates Used

• GDPMP – Gross Domestic Product at Market Price.

• GNPMP – GDPMP + Net Factor Income from Abroad (NFIA).

• NDPMP – GDPMP – Depreciation.

• NNPMP – GNPMP – Depreciation.

• NNPFC (National Income) – NNPMP – Indirect Taxes + Subsidies.

3. Methods of Measurement

(A) Value Added Method / Product Method

• Measures national income as the sum of value added at each stage of production within the domestic territory.

• Value Added = Value of Output – Intermediate Consumption

• Precautions:

  • Exclude intermediate goods to avoid double counting.

  • Include only final output.

  • Include value of own-account production (like farm produce kept for self-use).

(B) Income Method

• Measures national income as the sum of factor incomes generated in the production process.

• National Income = Rent + Wages + Interest + Profit + Mixed Income of Self-employed

• Precautions:

  • Include only factor incomes.

  • Exclude transfer incomes, capital gains, and illegal incomes.

(C) Expenditure Method

• Measures national income as the sum of final expenditures made in the economy.

• National Income = Private Final Consumption + Government Final Consumption + Gross Domestic Capital Formation + Net Exports (Exports – Imports)

• Precautions:

  • Include only final expenditure.

  • Exclude expenditure on intermediate goods and transfer payments.

4. Choice of Method

Depends on availability of data:

• Value Added Method – used when output and intermediate consumption data are available.

• Income Method – used when factor income data is available.

• Expenditure Method – used when data on spending patterns is available.

5. Precautions in Measurement

• Avoid double counting.

• Use market value at current or constant prices as required.

• Include value of self-consumed goods and services.

• Exclude illegal transactions and purely financial transactions.

6. Importance of Measurement

• Assesses economic performance.

• Helps in policy formulation.

• Compares growth over time and between countries.