Concept and Measurement of National Income

 National income is the total value of goods and services produced within a country's borders in a given period, usually a year. It is an important measure of a country's economic performance and is used to evaluate living standards, economic growth, and international competitiveness. In this context, measuring national income is crucial for policymaking and forecasting future economic trends.

There are three primary methods of measuring national income:

Output Method: The output method measures national income by summing up the value of all goods and services produced within a country's borders. This includes the value of final goods and services produced by all sectors of the economy.

Income Method: The income method measures national income by adding up all the income earned by households, businesses, and the government. This includes wages and salaries, rent, interest, and profits.

Expenditure Method: The expenditure method measures national income by adding up all the spending by households, businesses, and the government. This includes consumption, investment, and government spending.

Examples of National Income:

Let's take a look at a few examples of national income:

Suppose a country produces 1,000 cars in a year, and each car sells for $20,000. The output method would measure national income as $20 million.

If the total income earned by households, businesses, and the government in a country is $10 billion, the income method would measure national income as $10 billion.

If the total spending by households, businesses, and the government in a country is $12 billion, the expenditure method would measure national income as $12 billion.

References:

Mankiw, N. G. (2014). Principles of Macroeconomics. Cengage Learning.

Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. McGraw-Hill.