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Economics Project Rollno 359 22 Section F

The document discusses methods of measuring national income including the income, product, and expenditure methods. It notes conceptual and statistical difficulties in reliably calculating national income due to challenges in valuation and data limitations.

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34 views10 pages

Economics Project Rollno 359 22 Section F

The document discusses methods of measuring national income including the income, product, and expenditure methods. It notes conceptual and statistical difficulties in reliably calculating national income due to challenges in valuation and data limitations.

Uploaded by

4gnkhbntpm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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UNIVERSITY INSTITUTE OF LEGAL

STUDIES,
PANJAB UNIVERSITY, CHANDIGARH.

A PROJECT REPORT SUBMITTED ON THE TOPIC:


NATIONAL INCOME MEASUREMENT:IS IT REALLY
RELIABLE
In fulfillment of the requirement for
B.COM. LLB (Hons.)
1st YEAR, SEMESTER 2
SUBMITTED TO: SUBMITTED BY:
Mrs. Meenu Saihjpal Mansimrit singh
Roll no: 359/22
Section-F
Acknowledgement

I would like to express my greatest gratitude to the people who have helped &
supported me throughout my project. I am grateful to my teacher, Mrs. Meenu
Saihjpal Mam , for her continuous support for the project, from initial advice &
contacts in the early stages of conceptual inception & through ongoing advice &
encouragement to this day, I wish to thank my parents for their undivided support
and interest who inspired me and encouraged me to go my own way, without
whom I would be unable to complete my project.
INDEX
1) Introduction-4
2) Objectives an features-5
3) Methods of measuring national income- 6-8
4) Conclusion-9
5) Bibliography-10
INTRODUCTION
National income is the value of the aggregate output of the different sectors during
a certain time period. In other words, it is the flow of goods and services produced
in an economy in a particular year. Thus, the measurement of National Income
becomes important. National income is an uncertain term which is used
interchangeably with national dividend, national output and national expenditure.
On this basis, national income has been defined in a number of ways.

In common parlance, national income means the total value of goods and services
produced annually in a country. In other words, the total amount of income
accruing to a country from economic activities in a year’s time is known as
national income. It includes payments made to all resources in the form of wages,
interest, rent and profits.
The equation to calculate national income is as follows:

National Income = C + I + G + (X -M)

Where,

1) (C) stands for consumption.


2) (I) stands for total investment expenditure
3) (G) stands for the expense made by the government
4) (X)stands for exports and
5) (M) stands for imports.
OBJECTIVES AND FEATURES OF
NATIONAL INCOME
Objectives:
1) To compute the economic advancement of a country.
2) To compare the economic growth of several countries.
3) To measure the contribution of different sectors to the country’s economic
growth.
4) To analyze the issues experienced by the economy.
5) To assist the government in planning and implementing various projects.
6) To find out the limitations and benefits of various economic activities like
production, consumption and distribution.

Features:
1) Macroeconomic concept- Macroeconomics explores how an economy
functions as a whole and focuses on aggregate measures. Since national income
is an aggregate term, it can be considered a macroeconomic concept.
2) Flow concept-it is measured over a period of time.
3) The Monetary Value of Commodities
4) Incorporates the value of final commodities and services- National income
covers only the value of ultimate goods not intermediate goods.
5) Net Aggregate Value-It does not involve depreciation or consumption of fixed
capital
Methods of measuring National Income

Income Method of National Income Measurement

!!!The income method of national income calculation is used in the


distribution level. The national income is estimated using this method as
a flow of factor incomes.
!!!Labor, capital, land and entrepreneurship are the four important
components of production.
!!!Labor is compensated with wages and salaries, capital is compensated
with interest, the land is compensated with rent and entrepreneurship is
compensated with profit.
!!!Moreover, certain self-employed individuals, such as doctors, lawyers
and accountants, make use of their own labor and capital. The earnings of
such people are classified as mixed-income.
!!!The Net Domestic Product (NDP) at factor costs is the sum of all of these
factor incomes.

National Income using the Income method is calculated as follows:

Net national income = Employee compensation + Operating surplus (w + R + P


+ I) + Net income + Net factor income from abroad
Where,

a) ‘W’ stands for wage and salaries.


b) ‘R stands for income from rental sources.
c) ‘P’ stands for profit.
d) ‘I’ stand for mixed-income.
Product/ Value Added Method of National Income
Measurement

i) The national income, in this case, is estimated at the production level.


The national income is estimated using this method as a flow of goods
and services.
ii) Over the course of a year, we determine the fiscal value of all final goods
and services produced in a country’s economy. The word “final goods”
refers to commodities that are consumed right away rather than being
engaged in a subsequent process of manufacturing.
iii) Intermediate goods are those goods that are made use of in the
manufacturing process.
iv) Due to the fact that the value of intermediate products is already included
in the value of final goods, we do not have to take into account the value
of intermediate goods in national income; if taken into account, the value
of the goods would be counted twice.
v) To avoid duplication in counting, we can make use of the value-added
approach, which computes the value-addition (i.e., the value of the final
product plus the value of the intermediate product) at every single stage
of production and then adds them together to get the Gross Domestic
Product.
vi) The sum-total is the GDP at market prices considering that the monetary
value is measured at market prices.

National Income using Product/ Value Added method can be calculated as


follows:

National Income = Gross national product – Cost of Capital – Depreciation –


Indirect Taxes
Expenditure Method

i) This method measures the total domestic expenditure of the economy. It


consists of two elements, viz. Consumption expenditure and Investment
expenditure.
ii) Consumption expenditure includes consumption expenditure of the
household sector on goods and services and consumption outlays of the
business sector and public authorities.
iii) Investment expenditure refers to the expenditure on the making of fixed
capital such as Plant and Machinery, buildings, etc.
iv) The factors such as government consumption expenditure, gross capital
formation (public and private) and net exports have to be taken into
consider
s
National income = C + I + G + (X − M)
Where,

i) C = Consumption by residents of the nation


ii) I = Investment
iii) G = Government spending
iv) X = Exports
v) M = Imports
Conclusion: Reliability of National income
Methods

Conceptual Difficulties
1) It is challenging to compute the value of some of the items such as services
rendered for free and commodities that are to be sold but are utilized for self-
consumption.
2) At times, it becomes difficult to make a clear distinction amongst primary,
intermediate and final goods.
3) What price should be chosen to decide on the fiscal value of a National Product
is always a difficult question?
4) Whether to incorporate the earnings of the foreign companies in the National
Income is always a question, since they send out a major portion of their
income outside India.

Statistical Difficulties

1) In case of changes in the level of prices, we need to use the index numbers that
have their own inherent limitations.
2) Statistical findings are not always precise as they are based on the sample
surveys. Also, all the necessary information is not always available.
3) Different countries adopt different methods of estimating National Income.
Thus, it is not readily comparable.

So due to the following difficulties there are high chances of mistakes in the
calculations of national income, that’s why it is not completely reliable but only a
estimate can be taken from data that is available to us for calculating the national
income.
BIBLIOGRAPHY

1) https://www.toppr.com/guides/fundamentals-of-economics-and-
management/national-Income/measurement-of-national-income/
2) https://www.economicsdiscussion.net/national-income/difficulties-of-
measuring-national-income-4-problems/6173
3) https://www.quora.com/Why-is-the-national-income-not-a-reliable-indicator-
of-the-standard-of-living
4) https://testbook.com/ias-preparation/measurement-of-national-income

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