Let us see some more
points in connection with National Income.
Labour of a
country with the help of the capital works on the natural resources of a
country thereby producing certain amount of goods and services the total value
of which is known as the National Income. The difficulties in arriving at exact
National Income have also been pointed out. Briefly, a product can be taken
into account at various levels of transport to the ultimate consumer; even, the
question of barter is also referred to.
The concept of
National Income comes to use when the distribution of income in the society is
assessed. First, it tells us whether the
income is equitably distributed in the society which is not normally possible
and when it is not equally distributed, it helps us find out how vast the
inequality is in the distribution of income. Since it is looked upon as the
over-all economic activity of the nation, it is commonly accepted as the index
of economic condition of a country at a given period.
Where there is
income it is but natural there must be some measurement of income; that is, how
much and how much more or how much less—these are the common ways of
approaching income. This is applicable for personal income too. How much I
earned last year and is it more compared with the income of this year or less?
say there are three methods of measuring the national income; they are the
product methods, the income method and the expenditure method.
In this method,
the money value of all final goods and services during a year is taken into
account. By final goods, it refers to those products, those goods that are
directly consumed away and they are not used in further production of some
different product. In other words, all such goods used in another production
process are called intermediate goods. Since their money value is already
included in the value of the final goods, their inclusion will lead to
The money value
is calculated at market prices; so, the sum total is GDP at market prices. And
to this must be added the net income from abroad which would give us National
In this method,
we have to consider the four factors of production that fetch revenue; they are
labour, capital, land and entrepreneurs. Labour gets wages and salaries;
capital draws interest; land invariably gets rent and entrepreneurs acquire
profit through their enterprise.
are in one sense self-employed people in the domain of business; but there are
some different kinds of self-employed persons such as doctors, lawyers, and
auditors so on. Their income is called mixed income.
The flow of
expenditure is basis of this method.
Consumption and investment and expenditure per se by the government are
three areas that come under this method. To put it simply, the sum of expenditure on
final goods and services less depreciation of capital assets can be considered
as the National income. As mentioned earlier, only the final products must be
taken into account and not the intermediate products that go into the making of
the final products. This avoids double counting.
In spite of
these three methods to measure the National Income, there are certain
difficulties that make an exact measurement of National Income impossible; we
will look into those reasons in our next session.