(ii) Classification of final aggregate expenditure into following components:(iii) Measurement final expenditure on the above components. However, while computing national income using the income approach, economists exclude transfer payments such as gifts and donations and profits from the sale of pre-owned goods. Circular Flow of Income and Methods of Calculating National Income This sum equals GDP at MP.

Income Method By this method, the total sum of the factor payments received during a given period is estimated to obtain the value of Domestic Income. You can also define national income as the total value of all goods and services produced over a specific period of time. Let’s look at the income and expenditure methods in detail.The income method of calculating national income takes into account the income generated from the basic factors of production. concepts cleared in less than 3 steps. The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest and profit for their productive services in an accounting year. Now you can classify expenditure based on consumption and investment.Consumption expenditure includes household consumption of goods and services (C). Thus, national income is calculated by adding up factor incomes generated by all the producing units located within the domestic economy during a period of account. Then they calculate the income for each sector and then derive the total national income.

Expenditure also includes an addition to the stock of raw materials.Investment expenditure also includes an acquisition of valuables such as precious metals or jewelry. And finally, the expenditure method focuses on the various types of expenditure based on consumption and investment. It also includes government’s expenditure on goods and services to fulfill social welfare needs (G).

Final expenditure is the expenditure made on purchase of domestically produced goods and services for final use, i.e., for consumption and investment.Under expenditure method national income is calculated first by adding up all the items of final consumption expenditure and final investment expenditure within the domestic economy The resulting total is called GDP at MR By subtracting depreciation and net indirect taxes from GDP at MP and adding to its net factor income from abroad, we get NNP at FC or national income. 1. Macro economics | Calculate national income using expenditure method Loading... Autoplay When autoplay is enabled, a suggested video will automatically play next. Depending on the way, the income is earned.

(ii) Government expenditure on all transfer payments such as scholarships, unemployment allowance, old-age pension, etc. (iv) Estimation of net factor income from abroad which is added to NDP at FC (Domestic Income) to obtain NNP at FC (National Income).The following precautions need to be taken for correct estimation of national Income by expenditure method. Our mission is to provide an online platform to help students to discuss anything and everything about Economics.

(iii) Expenditure on purchase of second-hand goods is excluded from national income because this type of expenditure is not on currently produced goods. 2. GDP = C + I + G + (X-M) where. Methods of Calculating National Income (i) Income method (ii) Expenditure method (iii) Product method or value added method or output method. It also includes travel allowances, bonuses, accommodation allowances, and medical reimbursements.In addition to wages and salaries, another important component of compensation is remuneration in the form of social security schemes such as Interest refers to the charges you pay for using borrowed capital.

2. That is the total exports minus total imports.Now while calculating national income using the expenditure approach, you need to also deduct depreciation on capital assets and indirect taxes.

They also exclude income from the sale of shares and debentures.Now that you are familiar with the income approach of calculating national income, let’s understand the expenditure approach. While calculating income, rent refers only to the income earned from using any land. Watch lectures, practise questions and take tests on the go. (v) Imputed expenditure on own account output (e.g., owner occupying his house, self- consumed output by a farmer) should be included.Welcome to EconomicsDiscussion.net! ADVERTISEMENTS: Expenditure Method for Measurement of National Income! Now let’s discuss all these components in detail.Rent is the money you pay for the use of land.

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